Silver Prices Forecast: Fed Inflation Worries Keep Rates High, Impacting XAG/USD

James Hyerczyk
Published: May 23, 2024, 11:58 GMT+00:00

Key Points:

  • Silver prices fall again after Fed minutes suggest prolonged high interest rates. Traders monitor Fed policy closely for further developments.
  • Fed minutes reveal significant inflation concerns, causing uncertainty about rate reductions. Silver prices feel the pressure of anticipated prolonged high rates.
  • Market expectations shift as Fed officials stress patience. Silver prices face downward pressure amid ongoing inflation and rate concerns.
Silver Prices Forecast

In this article:

Silver Prices Decline Amid Fed Rate Concerns

Silver prices are down for a second consecutive session on Thursday, extending losses after minutes from the Federal Reserve’s latest meeting indicated that interest rates would remain elevated for an extended period.

At 11:45 GMT, XAG/USD is trading $30.60, down $0.20 or -0.64%.

Fed’s Inflation Concerns

The minutes from the Federal Open Market Committee (FOMC) meeting on April 30-May 1 revealed heightened concerns about persistent inflation. Policymakers expressed uncertainty about when to start reducing interest rates, citing recent data showing inflation running well above the Fed’s 2% target. The minutes noted that while inflation had eased over the past year, there had been no further progress in recent months.

Potential for Further Tightening

The FOMC’s minutes highlighted the possibility of additional tightening if inflation risks escalate. Some officials indicated a readiness to increase rates should inflationary pressures intensify. Despite this, key figures like Fed Chair Jerome Powell and Governor Christopher Waller suggested that further rate hikes are unlikely in the near term.

Current Economic Indicators

The committee unanimously voted to maintain the benchmark short-term borrowing rate at 5.25%-5.5%, the highest level since July 2023. Recent data shows incremental progress on inflation, with the April consumer price index at 3.4% annually, down slightly from March. Core CPI, excluding food and energy, was at 3.6%, the lowest since April 2021. Despite these improvements, consumer sentiment surveys, such as those from the University of Michigan and the New York Fed, reflect growing concern over economic conditions.

Inflation Risks and Consumer Impact

Fed officials acknowledged several upside risks to inflation, particularly from geopolitical factors. They also noted the financial strain on lower-income households, who are increasingly relying on credit cards and buy-now-pay-later services, leading to higher delinquency rates. The minutes underscored the importance of maintaining economic growth while managing inflation expectations.

Market Expectations for Rate Cuts

Public statements from Fed officials since the meeting have been cautious. Governor Waller emphasized the need for consistent positive data before considering rate cuts. Chair Powell echoed the sentiment, stressing patience in letting restrictive policies take effect. Market expectations for rate cuts have adjusted, with futures pricing indicating a 60% chance of a rate cut in September, though the likelihood of a second cut in December has decreased to just over 50%.

Short-Term Market Forecast

Given the Fed’s stance on maintaining higher interest rates and ongoing inflation concerns, silver prices are likely to face continued downward pressure in the short term. Traders should monitor upcoming economic data and Fed communications for further insights into rate policy and its impact on silver markets.

Technical Analysis

Daily Silver (XAG/USD)

The early price action suggests XAG/USD is in correction mode after two days of selling pressure helped form a new short-term top.

On the upside, short-term resistance has been established at $32.48 to $32.52. On the downside, the chart pattern indicates there is plenty of room to drop further.

Given the short-term range of $26.02 to $32.52, the first objective is its 50% level at $29.27. Since the short-term trend is up, look for buyers on the first test of this level. If it fails as support then look out to the downside since the next target will likely be the uptrending 50-day moving average at $27.40.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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