Silver Prices Forecast: Fed’s Policy Shift Sparks Surge in XAG/USD

Highlights

• Silver rises with U.S. Dollar, Treasury yield declines.
• Inflation moderation fuels speculation on Fed’s rate plans.
• Market eyes Fed minutes, potential rate cuts boost silver.

Price Movement and Key Influences

Silver (XAGUSD) prices experienced a sharp rise on Tuesday, driven by a combination of lower U.S. Treasury yields and a weakening U.S. Dollar. The drop in yields has made non-yielding silver more attractive, while a softer dollar has increased its demand among foreign investors. Notably, the U.S. dollar hit a more than 2-1/2-month low, enhancing the appeal of dollar-denominated silver to holders of other currencies.

Economic Indicators and Federal Reserve Policy

The market’s attention is focused on the minutes from the Federal Reserve’s latest meeting for hints about future interest rate movements. Recent data, including lower-than-expected producer and consumer price indices, suggests inflation is moderating, indicating the Fed’s rate hikes are impacting the economy as intended. This has led to speculation that the Fed’s cycle of interest rate hikes might be concluding.

Market Expectations and Forecasts

The bond markets’ closure on Thursday for Thanksgiving and the release of the Fed’s meeting minutes at 19:00 GMT are pivotal events. Current market sentiment anticipates the Fed to maintain rates in their December meeting. There’s also a growing expectation of a rate cut by May 2024, with over a 50% likelihood, as per CME’s FedWatch Tool. Lower interest rates typically decrease the opportunity cost of holding silver, making it more appealing as an investment.

Short-Term Forecast

In the short term, silver prices are likely to remain buoyant, supported by the prospect of U.S. interest rate cuts, a continued weaker dollar, and ongoing geopolitical tensions. The market is keenly awaiting the Fed’s meeting minutes for further direction, which could significantly influence silver’s price trajectory in the coming weeks.

Technical Analysis

Silver (XAG/USD) is trading at 23.63, positioned above both the 200-day moving average (23.30) and the 50-day moving average (22.71), indicating a bullish trend.

The current price finds itself nestled between the minor support at 23.55 and the minor resistance at 24.50. This suggests a potential upswing, especially as it is closer to breaching the minor resistance than dropping below the minor support. Nonetheless, the close proximity to these technical levels also hints at a potential consolidation phase.

Overall, the market sentiment tilts towards bullish, yet it warrants caution considering the tight range between the nearby support and resistance levels.

Keep an eye on the downtrend line at 23.91. Taking out this level with conviction could trigger an acceleration to the upside.