Silver Prices Forecast: XAG/USD Reacts to US Jobs Data, Fed Policy Speculation

Highlights

• Silver faces a potential fourth consecutive decline after a promising peak last week.
• U.S. jobs report fuels volatility in Treasury yields
• Upcoming speeches from seven Fed officials eagerly awaited by traders for rate hike cues.

Silver’s Rollercoaster Ride Amid Economic Indicators

Silver (XAG/USD) prices, after climbing to a one-month peak last week, faced a downturn this Monday, marking the potential for its fourth consecutive decline. The initial surge came in light of the dollar’s pullback and speculation around the U.S. Federal Reserve’s anticipated pause in interest rate hikes. However, the shine was short-lived. With Monday being a U.S. bank holiday, traders should be prepared for subdued price movements and below-par trading volume.

The Impact of U.S. Jobs Report on Treasury Yields

Friday saw a rise in Treasury yields, influenced heavily by the latest U.S. jobs data. On Monday, early signs indicated another uptick in the Treasury futures market. The unemployment rate for August registered at 3.8%, a jump from July’s 3.5%, and the highest since February 2022. Although there was a hint of optimism as the U.S. added more jobs than anticipated – a seasonally adjusted 187,000 versus the expected 170,000 – the figures for June and July were retroactively adjusted downwards by 110,000, tempering the initial enthusiasm.

Fed’s Stance Amid Inflation Concerns

Chairman Jerome Powell’s recent comments hinting at possible further rate hikes to contain persistent inflation have ignited debates. The prevailing sentiment is that the weakening labor market might dissuade the Fed from more hikes this year. With the imminent Fed decisions in the offing, markets project a 93% probability of rates remaining unchanged in the September meeting, as per CME’s FedWatch tool. However, market predictions are split regarding the subsequent steps.

Economic Indicators Favor Silver

An array of economic signals, from moderating inflation to a relaxing labor market, strengthens the conviction that the U.S. economy is headed for a mild deceleration rather than a crash. The anticipated pause in interest rate hikes by the Fed might soften the dollar, providing a favorable environment for silver prices.

The Interplay Between Yields and Silver Prices

Given the inverse relationship between silver and interest rates, all eyes are on Treasury yields. With seven Fed officials expected to address the public this week, traders await insights that might shed light on decisions at the policy meeting scheduled for September 19-20. In the short term, a bearish sentiment prevails for silver, but the market remains hopeful for long-term gains.

Technical Analysis

The current 4-hour price of 24.18 is slightly below the previous 4-hour price of 24.27, indicating a minor downtrend. The price is currently sandwiched between the 200-4H moving average of 23.83 and the 50-4H moving average of 24.33, suggesting a narrowing trading range. The 14-4H RSI stands at 42.99, showing a weakened momentum but not in the oversold territory.

Price is positioned above the main support area (22.70 to 22.28) and below the main resistance area (25.00 to 25.27). In summary, the market for Silver (XAG/USD) on a 4-hour chart displays a mildly bearish sentiment, but it’s nearing key moving averages that could dictate its next move.