Silver Prices Forecast: XAG/USD Plodding Carefully Ahead of Fed Verdict

Highlights

• Market closely watches silver as a gauge of anticipation for Fed’s next move.
• The 10-year U.S. Treasury yield reaches a near 16-year high ahead of Fed’s September meet.
• Dollar’s strength highlights anticipation of hawkish Fed decision.

Federal Reserve’s Anticipated Decision and Silver’s Response

Silver’s (XAG/USD) cautious movement on Wednesday mirrors the market’s broader sentiment as everyone keenly awaits the Federal Reserve’s policy directive. Although the current consensus leans towards the Fed maintaining its existing interest rates, whispers of upcoming rate hikes later in the year are growing louder.

Economic Indicators and Market Behavior

U.S. Treasury yields, particularly the 10-year yield, have surged to heights not witnessed in nearly 16 years. This is primarily in response to the imminent updates from the Federal Reserve’s September assembly. Simultaneously, the U.S. dollar stands resilient.

The dollar index, benchmarked against a diversified basket of currencies, hovered around 105.13, underscoring the market’s eager anticipation of the Fed’s resolution.

The prevalent market prediction, backed by the CME FedWatch tool, posits that the Fed will maintain the status quo on rates, set between 5.25% and 5.50%. However, there’s a simmering speculation of a quarter-point spike either in November (30% probability) or December (40% likelihood).

Inflation, Oil Prices, and Their Bearing on Silver

The economic landscape further muddies with Treasury yields sustaining their elevated trajectory. Such behavior is emblematic of a market gearing up for a ‘hawkish hold’ stance by the Fed. Further layers of complexity are added by Treasury Secretary Janet Yellen’s remarks on aligning U.S. growth rates with ideal rates to meet inflationary targets. Concurrently, skyrocketing oil prices indicate prolonged periods of heightened rates, potentially suppressing silver’s allure.

Market Speculation and The Path Forward

The silver market, much like other commodities, hinges on the upcoming Federal Reserve meeting. The central question: Will there be any interest rate adjustments?

The broader financial sector, bolstered by insights from the CME’s FedWatch Tool, overwhelmingly expects unchanged rates post this meeting, yet holds a 35% belief in another rate increment before 2024 concludes.

The pivotal element in this unfolding drama will be Fed Chair Jerome Powell’s commentary, potentially shedding light on the bank’s future game plan. However, there remains an ambient uncertainty about the post-meeting trajectory of monetary policy.

The key? Gleaning insights from the Fed’s disclosures and the subsequent press briefing. Additionally, past data and statements suggest the possibility of further rate hikes, contingent on economic indicators.

Short-Term Forecast

In essence, the scales tip towards the Fed persisting in its hawkish stance, striving to pull inflation closer to the 2% mark – a development that might not bode well for silver. Meanwhile, upcoming meetings at international central banks, such as the Bank of Japan and Bank of England, are poised to further influence silver’s short-term journey.

Technical Analysis

The current 4-hour price of Silver stands at 23.21, showing a slight increase from the previous 4-hour close at 23.07. When observing the moving averages, the price is below the 200-4H moving average of 23.34 but above the 50-4H moving average of 23.02. This suggests a potential consolidation phase. The 14-4H RSI reading is 54.65, indicating a modestly bullish momentum, being just above the neutral threshold.

Moreover, the price is hovering above the main support area between 22.70 to 22.28 but remains below the main resistance area spanning from 25.00 to 25.27. Given the proximity to key support and the mildly positive RSI, the market sentiment leans slightly bullish, but caution is advised as it is nearing the 200-4H moving average resistance.

With the Fed announcements looking and given that XAG/USD is consolidating between the 50-4H and 200-4H moving averages, traders should brace for volatility and potential breakouts in either direction.