Silver Prices Forecast: Investors Eyeing US GDP Data, ECB Policy Decision

Key Points

• Silver rebounds, defying U.S. Dollar and Treasury yield strength.
• U.S. economic indicators suggest robust start to 2024.
• Interest rate expectations influence silver market’s short-term outlook.

Silver Market Outlook

Silver prices are on the rise, with traders showing resilience against the backdrop of a strengthening U.S. Dollar and Treasury yields. This upward trend is evident as silver rebounds from its November lows, showcasing a robust “buy the dip” sentiment among investors.

At 09:08 GMT, Silver (XAG/USD) is trading $22.78, up $0.11 or +0.48%.

U.S. Economic Indicators

Recent data indicates a robust start to 2024 for the U.S. economy. Business activity has seen an uptick in January, with the S&P Global survey highlighting a cooling in inflation. The U.S. Composite PMI Output Index rose to 52.3, signaling expansion in both manufacturing and services sectors. This positive outlook is tempered by rising delays in material procurement, potentially pressuring raw material prices.

Global Factors Influencing Silver

Geopolitical tensions and environmental factors, like disruptions in the Red Sea and droughts affecting the Panama Canal, are adding to the complexities of the silver market. These factors could lead to inflationary pressures, despite the current easing trend.

Interest Rate Expectations and Silver Vulnerability

The market anticipates a potential Federal Reserve rate cut, with a 43% chance in March, shifting to an 88% probability by May. Lower interest rates typically reduce the opportunity cost of holding non-yielding assets like silver. However, strong economic data and Federal Reserve policies could lead to a downside risk for silver prices.

Short-Term Economic Forecast

As attention turns to the imminent U.S. GDP data and the European Central Bank’s policy decision, there’s an anticipation of a GDP growth slowdown to 2% in the fourth quarter, hinting at a more pronounced economic cooldown in 2024.

This, coupled with a resilient yet cooling U.S. economy, is poised to shape silver’s short-term trend. Consequently, the short-term outlook for silver is cautiously bullish, buoyed by the resilient U.S. economy, the potential for interest rate easing, and ongoing global uncertainties.

However, this optimism is tempered by the need for investor vigilance, as the evolving economic landscape and forthcoming central bank policy decisions could significantly sway market sentiment.

Technical Analysis

Silver (XAG/USD) is trading higher on Thursday, reacting to oversold conditions after testing key support between $22.00 and $21.88 earlier in the week.

Although the trend is down, the daily chart shows there is plenty of room to the upside to extend the current short-covering rally. The next potential upside targets are the 50-day moving average at $23.61 and the 200-day moving average at $23.52.

Since the trend is down, we expect sellers to re-emerge on a test of the resistance cluster at $23.62 to $23.61. Overtaking this area, however, could fuel an acceleration to the upside.

A failure to extend the rally into this zone will be a sign of weakness. This could trigger a retest of the support area. If $21.88 fails to hold then look out to the downside.