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Silver Prices Forecast: US Economic Might Casts Shadow on XAG/USD’s Shine

By:
James Hyerczyk
Updated: Sep 8, 2023, 07:20 GMT+00:00

Silver surged briefly on Friday but expects a weekly drop, as the U.S. stands strong globally and eyes turn to the Federal Reserve's next moves.

Silver (XAG/USD)

In this article:

Highlights

  • Silver bracing for weekly decline.
  • U.S. economic data supports dollar’s rise.
  • Mixed sentiments from Federal Reserve officials.

Silver’s Uneasy Tango with the Dollar

In a climate where the U.S. Dollar asserts dominance, silver (XAG/USD) has experienced turbulence. While it surged briefly on Friday, the metal braces itself for a weekly drop. Traders are sidestepping the anticipated pause by the Federal Reserve, choosing to focus on consistent U.S. economic fortitude instead.

U.S. Economy’s Strength

Consistently encouraging U.S. economic indicators spell a positive tale for the dollar, marking its most extended weekly gain in nearly a decade. Data reveals an uptick in the U.S. services sector this August, and jobless claims are at their lowest since February. As Germany’s industrial production dwindles, the U.S. emerges as the robust anchor in the global economy.

Federal Reserve’s Approach

The Fed’s aggressive stance against inflation has seen the benchmark lending rate skyrocket 11 times in 18 months, levels unseen in 22 years. Despite this, the summer brought a slower pace in hikes. Current sentiments indicate a high likelihood of a continued pause in September. Dallas Fed President, Lorie Logan, however, highlights the constant need for readiness, given the ever-present inflation threat. Concurrently, Fed Governor Christopher Waller’s comments hint at a cautious approach, factoring in a potentially weakening job market.

Voices from the Fed

High U.S. interest rates are combating inflation effectively, but the journey might not be over. Several Federal Reserve officials, including Logan and Waller, have communicated a mix of caution and readiness. Logan’s endorsement for a September pause is resonated by Waller, who leans towards a data-driven approach. New York Fed President, John Williams, takes a balanced stance, emphasizing the balance in supply and demand. On the brighter side, Chicago Fed President Austan Goolsbee believes there’s an opportunity for a ‘soft landing’ without sliding into a recession.

Short-Term Forecast

Silver’s allure wanes, facing a strengthening U.S. dollar and the looming possibility of more rate hikes. When contrasted with Treasury bonds’ rising yields, the immediate outlook for silver leans bearishly. All eyes are on the Federal Reserve for the next steps in this economic dance.

Technical Analysis

4-Hour Silver (XAG/USD)

Silver XAU/USD currently trades at 23.06, precisely the same as the previous 4-hour price. It stands below both the 200-4H and 50-4H moving averages, at 23.66 and 23.97, respectively, indicating a potential bearish momentum. The 14-4H RSI reading of 30.57 suggests the commodity is in an oversold condition, hinting at a potential rebound.

While the price remains above the main support area (22.70 to 22.28), it is considerably below the main resistance (25.00 to 25.27). Given the commodity’s current position relative to its moving averages and the oversold RSI, the market sentiment leans bearish, but a bounce-back is possible due to the oversold conditions.

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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