Silver Prices Forecast: XAG/USD Faces Pressure from Strengthened Dollar, China’s Challenges

Highlights

• Silver (XAG/USD) drops to levels unseen since June.
• China cuts key policy rates amid economic slowdown.
• U.S. retail sales data eagerly awaited by XAG/USD traders. 

Overview

Silver prices felt the squeeze on Tuesday, as a resurgent U.S. dollar, buoyed by elevated U.S. Treasury yields and economic concerns in China, reduced the appeal of the dollar-denominated metal. By 07:24 GMT, spot silver (XAG/USD) had dipped 0.44% to settle at $22.56 per ounce, mirroring levels not seen since late June. Concurrently, U.S. December Silver futures edged down 0.17% to $22.99.

China’s Stuttering Economy and U.S. Treasury Yields

Investors around the globe have their eyes set on China, the world’s second-largest economy, which showed signs of stalling. The People’s Bank of China responded by slashing key policy rates, the second cut in just three months. This move was necessitated as recent data on industrial output and retail sales failed to meet economists’ expectations. Meanwhile, the U.S. dollar, considered a safe-haven asset, strengthened against major currencies, especially after a series of lackluster Chinese economic indicators. This, combined with U.S. 10-year Treasury yields nearing their highest since November, has made silver a costly proposition for international investors.

Anticipation Surrounding U.S. Retail Sales Data

With the backdrop of economic turbulence, market watchers eagerly await the U.S. retail sales data, which will provide insights into consumer spending patterns in the current rate environment. This data is crucial as it may sway the Federal Reserve’s future policy decisions. Recent comments from the U.S. Treasury Secretary, Janet Yellen, indicate optimism, citing President Joe Biden’s policies as a catalyst for notable job growth and enhanced competitiveness.

Short-term Forecast

As the Federal Reserve’s rate-hiking phase seems to have peaked in July 2023, experts predict a possible dovish turn only by 2024. With factors like the strengthening U.S. dollar and concerns about China’s economy in play, silver’s attractiveness might wane in the short term.

Technical Analysis

The current 4-hour price of Silver (XAG/USD) is $22.51, slightly below the previous 4-hour price of $22.65, suggesting a minor bearish movement. This price is below both the 200-4H moving average of $23.78 and the 50-4H moving average of $23.00, further emphasizing the bearish sentiment. The 14-4H RSI is at 35.28, which, being below the neutral mark of 50 but above 30, indicates a weakening momentum but not yet in the oversold territory.

The commodity is currently trading just above the main support area of $22.28, which may act as a cushion. However, with the price significantly below the main resistance range of $23.60 to $23.85, the overall short-term sentiment leans bearish.