Silver Prices Forecast: Fed’s Stance on Rates Casts Shadow Over XAG/USD Market

Key Points

• Silver near two-week lows due to strong dollar, high yields.
• Powell, Kashkari’s comments diminish hopes for quick rate cuts.
• Market braces for subdued silver amid cautious Fed approach.

Silver Market Under Pressure

Recent statements from Federal Reserve Chair Jerome Powell and Minneapolis Fed President Neel Kashkari have exerted significant influence on silver prices, with the metal languishing near two-week lows. The intertwining of a strong dollar, higher Treasury yields, and revised expectations regarding the Federal Reserve’s rate adjustments have been key drivers.

At 08:03 GMT, XAG/USD is trading $22.37, up $0.02 or +0.10%.

Economic Data’s Influence

January’s job report showing an addition of 353,000 jobs – a year’s peak – alongside substantial wage growth, has recalibrated market expectations. These figures suggest a robust U.S. economy, thereby diminishing the likelihood of immediate rate cuts by the Federal Reserve, impacting silver prices negatively.

Federal Reserve’s Current Stance

Both Powell and Kashkari have highlighted the resilience of the U.S. economy, suggesting a potentially higher neutral interest rate. This perspective indicates that the current monetary policy might not be as constrictive as previously assumed, challenging the earlier expectations for prompt rate cuts.

Market Reactions

The strengthened dollar and rising Treasury yields have made silver less attractive, causing a dip in its prices. However, geopolitical tensions provide some support, with the $22.23 – $21.88 range being crucial. The market’s focus is now on future Fed communications for further direction.

Short-Term Outlook

In the short term, silver’s prospects appear bearish. Statements from Powell and Kashkari, emphasizing a strong economy and a higher neutral rate, suggest less urgency for rate cuts. This stance is likely to continue influencing silver prices, keeping them subdued unless new, significant economic data or geopolitical events sway market sentiments. As investors digest these perspectives from Fed officials, the anticipation of a cautious and measured approach to monetary policy adjustments will likely keep silver prices under pressure.

Technical Analysis

Silver (XAG/USD) is nearly flat on Tuesday as counter-trend traders try to claw back some of its steep two-day losses. Helping to prop the market up is a static support level at $22.23 and the main bottom at $21.88.

The latter represents a trigger point for an acceleration to the downside with $20.66 the next major target price.

On the upside, the major resistance is the 200-day moving average at $23.43 and the 50-day moving average at $23.47. The 200-day MA is also controlling the longer-term direction and the 50-day MA is controlling the intermediate trend.

Traders seem to be waiting for a catalyst to signal the next round of selling pressure. This could be the 50-day MA crossing to the weakside of the 200-day MA. That’s where your focus should be over the short-run.