Silver Prices Forecast: Rising Yields, Hawkish Fed Concerns Weigh on XAG/USD

Highlights

• U.S. Treasury yields impact silver.
• XAG/USD appeal diminishes.
• Mixed global economic indicators influence silver.

Overview

As the allure of U.S. Treasury yields surged, reaching nearly a 10-month high on Tuesday on the back of expectations surrounding the Federal Reserve’s monetary tightening, silver found itself caught in a turbulent financial storm. The non-yielding nature of silver, coupled with its susceptibility to external pressures, has seen its value tumble over the past month.

Silver’s Dwindling Appeal in a Rising Yield Environment

The strengthening of the U.S. dollar and an unprecedented increase in real yields has seen the appeal of XAG/USD diminish. The recent decline in silver prices, bouncing from a multi-month low, is a testament to the influence exerted by these macroeconomic factors. As investors seek refuge in assets with rising yields, silver faces the brunt of this shift in preference.

Precious Metals & Waning Investor Sentiment

The decline in enthusiasm isn’t confined to silver alone. The world’s largest gold-backed exchange-traded fund, the SPDR Gold Trust, also experienced a significant drop in holdings, a nadir unseen since January 2020. The absence of inflows since late July further echoes the dwindling confidence in precious metals.

Impact of U.S. Economic Data on Silver

Encouraging retail sales data from the U.S. for July hinted at an economy holding its ground. A more resilient economy, coupled with the Federal Reserve’s aggressive interest rate policies, might further deter investors from viewing silver as a reliable safe haven, especially if these high rates are maintained.

China’s Stagnation and the Global Scene

The less-than-expected performance of China’s industrial production and retail sales for July adds another layer of complexity. Even with interest rate cuts by the People’s Bank of China, the growth concerns continue to loom, indirectly influencing the demand and appeal of silver on a global scale.

Short-term Forecast

Silver’s trajectory remains uncertain, influenced by multifaceted global factors and shifts in investor sentiment. With both U.S. and global economic indicators sending mixed signals, and the looming decisions of the Federal Reserve, silver’s position appears vulnerable, leaning towards a bearish sentiment in the immediate future.

Technical Analysis

Silver (XAG/USD) is currently trading at 22.69, a slight uptick from its previous 4-hour price of 22.58. It’s positioned below both the 200-4H moving average of 23.73 and the 50-4H moving average of 22.88, hinting at a bearish sentiment in the short term. The 14-4H RSI reads 49.47, suggesting a nearly neutral momentum, but slightly on the weaker side.

Prices are hovering precariously close to the main support area at 22.28, which was successfully tested on Tuesday.  Sentiment is bearish with the only hope for bullish speculators is an upside breakout over the 50-4H moving average at 22.88.