Silver Prices Forecast: Limited Gains Ahead as XAG Faces Competitive Pressures

Silver Traders React to Weaker Dollar

Silver are edging higher on Tuesday, influenced by various market factors including changes in Treasury yields, the performance of the U.S. Dollar, and the anticipation of U.S. inflation data. Despite this positive momentum, silver faces challenges from competing assets like equities, cryptocurrencies, and bullion.

At 11:56 GMT, XAG/USD is trading $24.83, up $0.15 or +0.62%.

Treasury Yields

The 10-year U.S. Treasury yield saw a slight decline on Tuesday as investors assessed previous data and awaited key inflation figures later in the week. The direction of Treasury yields is closely linked to expectations regarding the strength of the U.S. economy and the Federal Reserve’s monetary policy decisions.

The Dollar

The dollar index retreated from five-week highs on Tuesday, signaling a weakening against major rivals. Bearish comments from Fed officials contributed to this decline, increasing speculation about a potential interest rate cut in June. Additionally, profit-taking and yen strength further pressured the dollar. Market attention now turns to the release of the Federal Reserve’s favored inflation measure, which could provide insights into future interest rate adjustments.

Fed Remarks

Comments from Fed officials indicate a cautious approach towards interest rate decisions. While some suggest the possibility of multiple rate cuts this year, others emphasize the need for careful consideration based on economic data.

US Rate Prospects

Market expectations point towards a high probability of a 0.25% Fed interest rate cut in June. Traders are closely monitoring upcoming U.S. personal spending data for indications of inflation trends and potential policy responses. Lower interest rates are anticipated to reduce the opportunity cost of holding silver and other precious metals.

Key Reports

Investor focus shifts to the U.S. core personal consumption expenditure price index data scheduled for release on Friday. Monday’s economic data releases, including unexpected declines in new home sales and the Dallas Fed manufacturing index, underscore the importance of upcoming reports in shaping market sentiment.

Short-term Forecast

With silver prices responding to a combination of market factors, including Treasury yields, the U.S. Dollar, and inflation expectations, the short-term outlook remains uncertain. Traders await key data releases and Fed commentary for clearer signals on market direction. Although there is a bias to the long side, gains could be limited by strong demadn for equities, cryptocurrenties and gold.

Technical Analysis

XAG/USD is in an uptrend, but seems to lack the momentum to drive prices away from support at $24.40. Recovering $25.00 on an intraday basis may be the catalyst that spikes prices higher later this week. But for now, I think traders should be more concerned about the downside risks especially due to last Thursday’s steep reversal to the downside.

A trade through $24.40 could cause significant damage to the daily chart and may even trigger a steep correction with the next major target a support cluster formed by the 50-day moving average at $23.36 and the 200-day moving average at $23.35.