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Silver Prices Forecast: Will a Strong Dollar Continue to Weigh on XAG/USD?

By:
James Hyerczyk
Updated: Jun 23, 2024, 05:49 GMT+00:00

Key Points:

  • Silver prices drop nearly 4% as stronger dollar and rising yields increase pressure.
  • U.S. business activity hits a 26-month high, impacting silver prices negatively.
  • Traders eye upcoming GDP and Core PCE reports for silver market direction.
Silver Prices Forecast

In this article:

Silver Prices Under Pressure from Strong Dollar and Rising Yields

Silver prices fell last week, with a notable drop of nearly 4% on Friday, influenced by a stronger U.S. dollar and rising bond yields. Robust U.S. business activity data and decreasing unemployment claims contributed to the dollar’s strength, which in turn, weighed on silver.

Last week, XAG/USD settled at $29.55, down -0.01 or -0.02%.

Weekly Silver (XAG/USD)

U.S. Economic Data Shows Strength, Impacting Silver Prices

Recent economic data indicated a 26-month high in U.S. business activity for June, driven by improved employment figures. Additionally, first-time U.S. unemployment benefit claims fell moderately. These factors reinforced expectations of a resilient economy, diminishing the likelihood of near-term Federal Reserve rate cuts. Consequently, silver prices were pressured as higher interest rates increase the opportunity cost of holding non-yielding assets like silver.

Dollar Strength and Rising Treasury Yields Increase Pressure on Silver

The U.S. dollar gained strength as Treasury yields rose. The 10-year Treasury yield climbed above 4.28%, increasing the opportunity cost of holding non-yielding assets like silver. This yield increase reflects market anticipation of continued economic strength and potential delays in Federal Reserve rate cuts. Higher yields make bonds more attractive compared to non-interest-bearing assets, thus putting downward pressure on silver prices.

Upcoming Economic Reports Critical for Silver Market Direction

This week’s major U.S. economic reports include the second revision of GDP, Initial Jobless Claims, and the Core PCE Price Index. These reports, alongside various Federal Reserve speakers’ appearances, could significantly impact silver prices. Traders should pay attention to signals about economic growth, inflation, and potential shifts in monetary policy. The GDP revision will provide insights into the economic performance, while the Core PCE is a key inflation measure closely watched by the Fed.

Short-Term Market Forecast: Bearish Outlook Amid Economic Uncertainty

Bearish Outlook

In the short term, silver prices are likely to remain under pressure due to the stronger U.S. dollar and rising Treasury yields. The mixed signals from the Federal Reserve regarding potential rate cuts contribute to market uncertainty. The upcoming economic reports, particularly the GDP revision and Core PCE, will be critical in shaping market expectations. Traders should be cautious as the market may experience further fluctuations based on these reports and Fed communications.

Long-Term Market Forecast: Bullish Potential Despite Short-Term Headwinds

Bullish Potential

However, the long-term outlook for silver remains bullish. Expectations of eventual Federal Reserve rate cuts, coupled with ongoing geopolitical uncertainties and sustained industrial demand, support a positive forecast for silver. Investors should stay vigilant and monitor key economic indicators and central bank communications to navigate the market effectively.

In summary, while silver faces short-term challenges due to a stronger dollar and rising yields, its long-term prospects remain strong, driven by potential dovish shifts in monetary policy and geopolitical factors.

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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