Silver Prices Forecast: Will the Rally Sustain Amid Rising Yields?

Silver Market Outlook: Rally Amid Rising Yields and Firm Dollar

Silver’s ascent to its highest level since late June 2021 marks a significant milestone, with the metal posting a second consecutive weekly rise. Factors fueling this rally included expectations of the Federal Reserve cutting rates this year, escalating tensions in the Middle East, and a heightened sense of economic uncertainty. Notably, the market showed a remarkable two-sided reaction to the unexpectedly strong U.S. job growth reported in March.

Last week, XAG/USD settled at $27.49, up $2.53 or +10.12%.

Capital Inflows and Gold’s Influence

The silver market is witnessing substantial capital inflows, with investors increasingly drawn to its potential. Parallel to this, gold has also seen a surge in interest, initially driven by robust central bank purchases and subsequently by speculative buyers. This has set a favorable backdrop for silver, which broke through the $26.00 resistance level, eventually reaching $27.00.

Economic Indicators and Treasury Yields

A significant jump in Treasury yields followed the release of the U.S. nonfarm payrolls data for March, which exceeded expectations. The 10-year Treasury yield saw an increase of over 9 basis points, reaching 4.4%. Similarly, the 2-year Treasury yield climbed by 10.9 basis points to 4.75%. These movements in yields are indicative of the market’s reaction to economic developments and have potentially bearish implications for silver prices.

Fed’s Rate Cut Outlook

The Federal Reserve’s stance on interest rates remains a critical factor for silver investors. Currently, the expectation is for three rate cuts by year-end. However, some Fed officials, like Minneapolis Fed President Neel Kashkari, express skepticism about these cuts if inflation persists above the 2% target. The FedWatch Tool indicates a roughly 59% likelihood of a rate cut in June, a scenario that typically reduces the opportunity cost of holding silver.

Dollar Strength and Commodities Prices

The U.S. dollar, despite its strength on the back of the robust jobs report, posted a weekly loss, which helped underpin silver prices last week. This fluctuation stems from mixed economic signals and changing expectations regarding Fed rate cuts. Additionally, the rising prices of commodities, including oil and metals, add complexity to the inflation scenario, potentially influencing silver’s value.

Short-term Market Forecast

In the short term, the silver market appears cautiously bullish. The combination of a resilient economy, potential rate cuts, and ongoing geopolitical tensions creates a complex but potentially favorable environment for silver. Investors should monitor Federal Reserve communications and global economic indicators closely, as these will significantly influence silver’s trend in the coming weeks.

Traders should pay particular attention to Wednesday’s U.S. Consumer Price Index report since it will have an impact on the timing of the Fed’s first rate hike. The report will also have the power to turn a bullish market to bearish. Be prepared for volatile price swings like the reaction to last Friday’s U.S. Non-Farm Payrolls report.