Silver Prices Forecast: Testing Key Support as Traders Await GDP Report

Influence of Federal Reserve Policy

Silver prices are lower on Wednesday, teetering near pivotal support levels at $22.23 to $21.88. This trend is largely driven by a resurgence in the U.S. dollar, fueled by anticipation of key economic data that will shape market perceptions regarding the Federal Reserve’s rate cut timeline. Despite a slight dip in Treasury yields, silver prices are not finding support.

At 12:08 GMT, XAG/USD is trading $22.39, down $0.07 or -0.32%.

Treasury Yields and Economic Data

The focus is now on imminent economic indicators, particularly the personal consumption expenditures (PCE) price index due Thursday. This index is a critical inflation metric for the Federal Reserve. Its outcome could signal whether inflationary pressures are subsiding, a factor crucial for the Fed’s rate cut decisions.

Interest Rate Outlook

Expectations for the Federal Reserve’s initial rate cut have shifted, now projected for June instead of the earlier March estimate. This adjustment follows the release of consumer and producer price indexes in January, both of which exceeded expectations, signaling a potential delay in reducing interest rates.

Federal Reserve’s Cautious Approach

Fed Governor Michelle Bowman recently reinforced the central bank’s cautious stance on rate adjustments, highlighting persistent inflation concerns. Bowman stated, “My baseline outlook continues to be that inflation will decline further with the policy rate held steady. I will remain cautious in my approach to considering future changes in the stance of policy.” This comment underscores the Fed’s current focus on balancing inflation control with economic growth.

Dollar Strength and Silver’s Outlook

The dollar index’s recent gain, marking its best performance since mid-February, has diminished the appeal of dollar-denominated silver for holders of other currencies. The market is also awaiting U.S. GDP data and the PCE price index, which will further shape silver price movements.

Short-term Market Forecast

The short-term outlook for silver appears bearish. Robust PCE data could further postpone Fed rate cuts, supporting the U.S. dollar and consequently restraining silver prices. Central banks might increase their silver holdings amid global uncertainties, but the primary market driver in the near term will be the anticipation of Federal Reserve policies, particularly in light of Bowman’s recent statements suggesting a preference for maintaining current interest rates.

Technical Analysis

XAG/USD is lower for a third straight session and the sixth in eight market days, putting it in a position to challenge static support at $22.23, followed by a minor bottom at $21.93 and a major low from November 13 at $21.88. The latter is a potential trigger point for an acceleration to the downside.

The major resistance is the 50-day moving average at $23.01 and the 200-day moving average at $23.26. They are controlling the intermediate and long-term trends, respectively.