Silver Prices Forecast: XAG/USD Sways Between Fed Policy and Middle East Unrest

Highlights

• Market sentiment for silver (XAG/USD) clouded by Federal Reserve’s upcoming policy decisions.
• The U.S. dollar and Treasury yields rally, exerting downward pressure on silver prices.
• Middle East unrest spikes safe-haven interest in silver amid rising Israel-Hamas tensions.

Silver Prices Under the Dual Influence of Fed Policy and Middle East Tensions

Silver prices (XAG/USD) are caught in a whirlwind of shifting financial and geopolitical currents, most notably the looming decisions by the U.S. Federal Reserve and escalating conflict in the Middle East.

Federal Reserve and Economic News

The financial markets are on high alert as they anticipate Federal Reserve Chair Jerome Powell’s speech this week, a decisive factor that could influence interest rate policies. The greenback and Treasury yields have strengthened, putting downward pressure on silver. The rising yields and strong U.S. economic data, notably in retail and industrial sectors, present a headwind for silver prices. Market participants see only a 10% likelihood of a Fed rate hike in November, suggesting that any upside surprise in U.S. economic data could further suppress silver’s value.

Middle-Eastern Dynamics

On the geopolitical front, the conflict between Israel and Hamas intensifies. President Joe Biden is set to visit Israel, underscoring the gravity of the situation. This conflict has led to spikes in silver prices, viewed as a safe haven during uncertain times. As Israel preps for a potential ground invasion into Gaza, market watchers predict that such a move could catalyze another surge in silver prices.

Yield and Inflation Factors

Yields on the 10-year and 2-year Treasury notes are rising, impacting the opportunity cost of holding silver, a non-yielding asset. Fed officials, like Philadelphia Federal Reserve President Patrick Harker, have indicated that interest rates could remain steady, given the already heightened Treasury yields, which aim to curb inflation and stimulate the economy.

Short-Term Forecast

In the short term, the market sentiment for silver is highly uncertain, tinged with both bullish and bearish indicators. On one hand, Fed policy and robust U.S. economic data could suppress prices. On the other, escalating Middle East tensions could provide upward momentum. Traders must navigate these conflicting currents carefully.

Given the competing influences of Federal Reserve policies and mounting geopolitical tensions in the Middle East, the market sentiment leans more towards uncertainty rather than a clear bullish or bearish outlook.

Technical Analysis

The current Daily price of gold (XAG/USD) at 22.51 is below both the 200-day moving average of 23.33 and the 50-day moving average of 22.90, signaling a bearish sentiment. The asset is trading just above its trend line support at 22.23, dangerously close to a level that, if broken, could trigger a downside acceleration.

With minor and main support levels at 20.66 and 19.90, respectively, there’s cushion for potential declines. On the upside, overcoming trend line resistance at 24.28 and minor resistance at 23.55 could change the narrative, but the main resistance at 24.49 stands as a significant barrier.

Overall, the market sentiment leans bearish.