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Silver Prices Forecast: Is Bearish Trend Set to Continue Amid Inflation Fears?

By:
James Hyerczyk
Updated: Feb 3, 2024, 11:12 UTC

The Federal Reserve's reluctance to cut interest rates, amid strong economic indicators, poses challenges for silver investors.

Silver Prices Forecast

In this article:

Key Points

  • Silver faces pressure from a strengthening dollar and rising Treasury yields.
  • The Fed’s current interest rate policy is negatively impacting silver’s appeal.
  • Ongoing inflation and wage growth trends could further drive silver prices down.

Silver Market Weekly Review: Prices Trend Lower

Silver (XAG/USD) prices ended last week lower, settling at $22.69, down by 0.49%. This decline was influenced by a mix of economic factors, primarily the strengthening of the U.S. dollar and an upswing in Treasury yields, in response to a surprisingly strong U.S. jobs report.

Weekly Silver (XAG/USD)

Dollar Index Rises After Jobs Report

The U.S. dollar index (DXY) experienced a significant uptick last week, rising 0.47% to reach a seven-week peak of 104.04. This increase was directly linked to the U.S. economy adding 353,000 jobs in January, far exceeding the expectations of 180,000. The strong jobs data boosted the dollar, as it suggests a more robust economy than previously thought. A stronger dollar makes silver more expensive for investors using other currencies, leading to reduced demand and lower prices.

Treasury Yields Reflect Economic Optimism

The yields on 10-year Treasury notes surged by 16 basis points, hitting 4.02%, while the 2-year yield increased by 17.4 basis points to 4.37%. These jumps are reactions to the positive jobs report, which signals confidence in the U.S. economy. Higher yields often make bonds more attractive to investors compared to non-yielding assets like silver, hence the negative impact on silver prices.

Federal Reserve’s Interest Rate Strategy

Fed Chair Jerome Powell’s recent comments suggest a reluctance to cut interest rates in the near term. The adjusted market expectations, as shown by the CME Fed Watch Tool, now reflect only a 70% chance of a rate cut in May, a significant decrease from the previously predicted 92%. The Fed’s stance on interest rates is influential for silver, as lower rates generally boost the appeal of non-yielding assets. The diminished likelihood of a rate cut makes silver less attractive in comparison to yield-bearing assets.

Impact of Wage Growth on Inflation

Average hourly earnings increased by 0.6%, indicating ongoing inflationary pressures. This wage growth could influence the Federal Reserve’s decision-making process regarding interest rates, as controlling inflation is a key part of their mandate. Persistent inflation might lead the Fed to maintain or even increase interest rates, which could further dampen the appeal of silver as an investment.

Weekly Forecast: Bearish Outlook for Silver

The forecast for silver in the coming week leans towards a bearish outlook. The convergence of a stronger dollar, increased Treasury yields, and the Fed’s current stance on interest rates sets a challenging backdrop for silver.

Additionally, ongoing inflation concerns may keep the Fed from lowering rates, further limiting the upside for silver prices. Traders and investors in silver should remain vigilant, monitoring upcoming economic indicators and Fed communications for signs of any shifts in policy or economic performance that could influence silver’s price trends.

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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