Silver Prices Forecast: Hawkish Fed, Strong Dollar to Test Market Resilience

Key Factors Influencing Prices

Silver prices faced a downturn on Monday, responding to a strong dollar and steady Treasury yields. This movement occurs amidst heightened anticipation for the forthcoming policy decisions from major global central banks, notably the U.S. Federal Reserve.

At 10:36 GMT, XAG/USD is trading $25.11, down $0.07 or -0.28%.

Fed Rate Decisions and Silver Appeal

The Federal Reserve’s current consensus is to hold interest rates steady between 5.25% and 5.5%. This decision affects the market, with traders estimating a 56% likelihood of a rate cut by June. High interest rates typically reduce the allure of non-yielding assets like silver.

Inflation and Rate Projections

Recent U.S. data indicated a considerable rise in consumer and producer prices, primarily due to increasing costs of essential commodities like gasoline and food. This persistent inflation could lead the Fed to favor a longer period of high-interest rates. Silver investors are closely watching for any signs that deviate from the expected one or two rate cuts this year.

Global Central Banks’ Role

This week is not only significant for the Fed’s decision but also for the Bank of England and the Bank of Japan. Their policies might also impact the global economic scenario, thereby influencing silver prices.

Dollar Stability and Silver Cost

The dollar’s performance remains pivotal for silver’s international demand. Currently, the dollar is steady, and any shift caused by central bank outcomes will directly affect silver’s affordability for buyers using other currencies.

Short-Term Silver Market Forecast

While a hawkish Federal Reserve stance, a resilient dollar, and increasing yields typically create a bearish environment for silver, recent market trends suggest a shift. Last week, silver demonstrated unexpected bullishness, a trend that might continue into the current week. This positive movement in silver prices is further supported by robust industrial demand, notably from sectors like solar energy and electronics, which could counterbalance traditional bearish influences.

The upcoming Federal Reserve meeting adds a layer of uncertainty to the market’s direction. If the Fed indicates fewer than three rate cuts this year, it could send a bearish signal for silver. However, considering silver’s recent rise and sustained industrial demand, the market’s response post-Fed announcement remains unpredictable, with potential for movement in either direction.

Technical Analysis

XAG/USD is inching lower on Monday, but remains in a position to challenge last week’s high at $25.59 and the December 4 top at $25.91. Taking out both of these tops will signal the presence of strong buyers.

The first sign of weakness will be a failure at $24.50, followed by a short-term bottom at $24.01. Taking out the latter will shift the short-term trend to down.