Silver Prices Forecast: XAG/USD Faces Uncertainty Amid Fed Rate Decisions

Silver Loses Luster as Fed Trims Rate Cut Expectations

Spot silver prices retreated on Thursday after the Federal Reserve adopted a more cautious stance on interest rate cuts. The central bank left rates unchanged at its June meeting, dashing hopes for multiple cuts this year, and revised its forecast down to just one reduction in 2024. This shift in policy, combined with a stronger dollar, pressured silver prices and pushed them into a period of potential volatility.

At 10:18 GMT, XAG/USD is trading $29.31, down $0.42 or -1.40%.

Fed Leans Hawkish, Dollar Gains

The Federal Reserve’s decision to maintain the federal funds rate target range at 5.25%-5.50%, as anticipated by the market, wasn’t the main story. Instead, it was the accompanying policy statement and press conference by Chair Jerome Powell that dampened expectations for a swift easing of monetary policy. Policymakers prioritized combating inflation, despite recent data showing some easing in consumer prices. This hawkish tilt by the Fed strengthened the US dollar, making dollar-denominated silver more expensive for foreign investors and exerting downward pressure on prices.

Silver Waits for Rate Cut Clarity

The silver market, which typically thrives on expectations of lower interest rates, now faces uncertainty. While recent inflation data offered a positive sign, the delay in rate cuts throws a curveball at the bullish narrative. Lower borrowing costs tend to make non-interest-bearing assets like silver more attractive, but the timing of those cuts remains unclear. This lack of clarity from the Fed is likely to result in volatile silver prices in the near term.

Economic Data and Fed Guidance Key

Traders should pay close attention to upcoming economic data releases and the Fed’s pronouncements for clues on the central bank’s next move. Initial jobless claims data and the producer price index for May, both scheduled for release today, could offer insights into inflation pressures. Additionally, any indications from the Fed about the timing of the single rate cut it now forecasts for 2024 will be crucial for gauging silver’s future direction.

Choppy Trading Ahead for Silver

With the Fed adopting a wait-and-see approach, silver’s short-term outlook is uncertain. While the recent inflation slowdown may provide some support, the delay in rate cuts could limit any significant upward momentum. Investors should be prepared for choppy price action until the Fed offers a clearer timeline for its monetary policy changes.

Technical Analysis

XAG/USD is trading lower on Thursday but the intraday direction is still uncertain due to the strong technical bounce following a test of the 50-day moving average at $28.94. What we do know is this intermediate trend indicator is controlling the near-term direction of the market.

Holding above the 50-day moving average will indicate the presence of buyers. It doesn’t necessarily mean the market will rally to a new high over the near-term, but it will indicate that there is enough buyers out there to prevent a wash-out to the downside.

Nonetheless, we see the market with limited upside possibilities at this time, but vulnerable to a steep near-term break should the 50-day MA fail as support.