Silver Prices Forecast: XAG/USD Dips Amid Fed, Yield Rise and Dollar Surge

Highlights

• Silver prices dropped last week, marking a significant decline since late October.
• Fed Chair Powell’s hawkish stance led to a stronger U.S. dollar, affecting silver negatively.
• Rising Treasury yields and a robust greenback exerted downward pressure on non-yielding and dollar-denominated XAG/USD. 

Silver’s Downward Trend Amid Economic and Geopolitical Factors

Last week, silver prices spiked lower, influenced heavily by the hawkish stance of Federal Reserve Chair Jerome Powell and a strengthened U.S. dollar. Spot silver (XAG/USD) dipped significantly, marking a 2.62% decrease, its most considerable drop since the week-ending October 6. This downward trend in silver prices is largely attributed to Powell’s remarks and an improved risk appetite among investors.

Impact of Federal Reserve’s Policy and Dollar Strength

The Federal Reserve’s uncertain stance on whether current interest rates are sufficient to combat inflation has been a key driver in the market. Powell’s comments suggesting that the Fed might need to hike rates further if inflation persists above the target have led to a stronger dollar. This increase in the dollar’s strength, coupled with rising Treasury yields, has put additional downward pressure on silver prices. The market is also closely monitoring consumer price inflation and retail sales data due next week for further clues on the potential for more rate hikes.

Market Speculation and Silver’s Price Action

Despite a brief period when the dollar tumbled following a dovish interpretation of Powell’s comments in early November, the overall sentiment in the market remains cautious. Fed funds futures traders are currently pricing in a 22% chance of an additional hike by January. Analysts, however, warn that the market may be underestimating the likelihood of continued monetary tightening, given the persistent global inflation.

Treasury Yields and Economic Outlook

The 10-year U.S. Treasury yield edged higher over the week, reflecting investor considerations of future inflation and monetary policy. The muted demand at a recent 30-year bond auction, which saw the yield on the 10-year Treasury climb significantly, indicates investor concerns about the long-term economic outlook and monetary policy.

Short-Term Forecast for Silver

Looking ahead, the outlook for silver appears to point lower in the near term. This trend is expected to continue unless there is an escalation in geopolitical events, a weak U.S. economic report, or indications from the Fed that it is done raising rates.

The interplay between the dollar’s strength, Treasury yields, and the Fed’s monetary policy will be critical in shaping silver’s price action in the coming weeks.