Silver Prices Forecast: Will Gold Strength, CPI Data Drive XAG/USD’s Direction Next Week?

James Hyerczyk
Updated: Mar 9, 2024, 21:34 GMT+00:00

Key Points:

  • Fed's potential rate cut influencing silver's upward price trend.
  • Upcoming CPI reports crucial for silver and gold market dynamics.
  • Traders hedging gold gains by selling silver positions.
Silver Prices Forecast

In this article:

Silver Prices Surge on Federal Reserve Expectations

Silver showed a significant increase last week, achieving its highest level since the beginning of December. This upward movement was propelled by market anticipations of a change in the U.S. Federal Reserve’s interest rate strategy.

Silver (XAG/USD) concluded the week at $24.31, marking an increase of $1.18 or +5.11%.

DailySilver (XAG/USD)

Insights into Federal Reserve’s Policy

Jerome Powell, the Federal Reserve Chairman, in his recent addresses to Congress, signaled the potential for lowering interest rates later in the year, subject to further economic analysis. The Fed has elevated interest rates by a cumulative 5.25 percentage points from March 2022. Powell’s latest statements suggest an approach focused on deliberate and careful economic management, striving to balance the challenge of controlling inflation with fostering sustainable economic growth.

Influences of Economic Figures

An increase in U.S. unemployment and moderated wage gains, despite a surge in job growth in February, suggest the possibility of a rate reduction by the Fed, potentially around June. Silver’s positive reaction to these economic figures was later tempered, influenced by actions of gold traders who sold silver to hedge their long gold positions, considering gold’s relative market strength.

Comparison of Silver and Gold Performance

In contrast to silver’s 3-month peak, gold (XAU/USD) reached a record high at $2195.235, concluding the week at a groundbreaking $2179.105, an upsurge of $96.375 or +4.63%. This disparity in performance illustrates a trend of central bank preference for gold, influencing the silver market largely driven by commodity traders and speculators. The upcoming CPI and PPI reports are vital, poised to influence the direction of both metals’ prices.

Impact of Dollar and Treasury Yields

Last week’s 1.10% decline in the dollar index enhanced silver’s attractiveness to international investors. Additionally, the yield on the 10-year U.S. Treasury note reduced by 2.51%, hitting a low not seen in over a month. These conditions, along with the current climate of low-interest rates, provide a supportive backdrop for silver by minimizing the cost of holding the metal.

Market Projections

The futures market suggests a 30% chance of a Federal Reserve rate reduction in May, with a stronger likelihood of 73% for June. Silver’s market performance is expected to be swayed by these probabilities and the outcomes of important economic reports. If CPI and PPI readings exceed expectations, it could prompt a reevaluation of the chances for a June rate reduction, potentially influencing silver’s short-term market behavior.

To conclude, silver’s market path is closely connected to the strategies of the Federal Reserve, economic reports, and its comparative performance against gold. The current market environment, with gold traders using sales of silver as a hedge, suggests a cautiously positive future for silver.

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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