Silver Prices Forecast: Sellers Responding to Fed’s Monetary Policy Assessment

Silver Prices React to Fed’s Monetary Policy Outlook

Silver prices declined on Thursday as investors evaluated the potential for monetary policy easing in the United States following the Federal Reserve’s assessment that progress on inflation has stalled and interest rates are likely to remain elevated.

At 12:07 GMT, XAG/USD is trading $26.21, down $0.44 or -1.64%.

Fed’s Signal on Rate Cuts

The Federal Reserve’s decision to hold interest rates steady on Wednesday and its indication of a continued inclination towards eventual reductions in borrowing costs weighed on silver prices. However, independent analyst Ross Norman noted that the delay in rate cuts until later in the year initially had a bearish impact on silver but subsequently lifted prices as the dollar weakened.

Market Reaction and Fed’s Stance

Silver prices declined as investors reacted to the Fed’s stance on monetary policy, with a bearish sentiment prevailing amidst uncertainty surrounding inflation and interest rates. Spot prices surged by 1.4% on Wednesday amidst a decline in the U.S. dollar and Treasury yields. Nonetheless, the market retraced nearly half of those gains in subsequent trading sessions, reflecting the volatility in the market. Federal Reserve Chair Jerome Powell emphasized that any future interest rate adjustments would be data-dependent, suggesting that an increase in rates is unlikely for the foreseeable future.

Impact of Elevated Interest Rates

The prospect of sustained elevated interest rates increases the opportunity cost of holding non-yielding assets such as silver, contributing to downward pressure on prices.

Forward Guidance and Inflation Concerns

Powell’s remarks on inflation highlighted the Fed’s cautious approach, acknowledging that while inflation remains high, further progress in reducing it is uncertain. The Fed also announced a plan to slow the pace of quantitative tightening, which is expected to gradually tighten monetary conditions.

Market Outlook and Data Watch

Investors are closely monitoring economic data, including factory orders, trade balances, and weekly initial jobless claims, in anticipation of Friday’s April jobs report. These indicators will provide insight into the direction of the U.S. economy and its potential impact on future Fed policy decisions.

In summary, silver prices declined as investors reacted to the Fed’s stance on monetary policy, with a bearish sentiment prevailing amidst uncertainty surrounding inflation and interest rates.

Technical Analysis

Silver’s reaction on Thursday suggests that yesterday’s intraday rally was likely fueled by short-covering. Today’s price action suggests investors are looking for value and that quest begins with a test of the 50-day moving average at $25.69.

Not only is the 50-day MA controlling the intermediate uptrend, but it’s also potential support and the triggerpoint for an acceleration to the downside. Needless to say, it’s the price to watch on Thursday.