Silver Prices Forecast: XAG/USD Tumbles as Dollar Strengthens Amid Fed Uncertainty

Highlights

• Silver languishes near a seven-month nadir, dragged by a potent U.S. dollar and Fed policy shifts.
• Robust U.S. jobs data and 16-year high bond yields diminish the allure of the non-interest-paying silver.
• The Fed’s hawkish stance persists despite internal disagreement on further rate hikes this year.
• Market odds suggest nearly a 45% chance of another Fed rate hike by year’s end, injecting volatility.

Silver Navigates Stormy Seas: Rate Hike Speculations and Dollar Muscle Weigh In

Silver (XAG/USD) is facing headwinds, languishing near a seven-month trough at $21.07 per ounce. Traders are contending with a buffet of influences, most notably a resurgent U.S. dollar and fluctuating Federal Reserve sentiments. Key levels to watch are resistance at $22.20 and support at $20.61, failure of which could send the metal tumbling to $19.80.

Jobs and Bonds Turn the Tide

The robust U.S. labor market, as evidenced by the surprising job openings in August, has further emboldened the dollar, putting downward pressure on the precious metal. Adding to silver’s woes are the 16-year highs in U.S. 10-year bond yields, diminishing the allure of non-yielding assets like silver.

Analysts Exercise Caution

Despite the bearish tones, some market watchers argue that most of the downward pressure has been baked into the current prices. Yet, caution remains the watchword, especially as the Fed’s rate-hiking cycle approaches its tail-end—a phase notorious for triggering “final liquidation breaks” in dollar-sensitive assets like silver.

Divided House at the Fed

The Federal Open Market Committee (FOMC) remains split on future rate hikes, although there’s a consensus for sustained elevated rates. Two key policy meetings loom on the horizon, with futures markets indicating a 25.7% likelihood of a November 1 rate hike and a 45% chance in December, adding another layer of complexity to silver’s outlook.

Short-Term Outlook: Bearish

With the labor market in focus and key economic data slated for release, the immediate future for silver appears bearish. Rising bond yields and a fortified dollar, coupled with uncertainties surrounding Federal Reserve policy, make the short-term path for silver a slippery slope.

Technical Analysis

The current Daily price of Silver (XAG/USD) at $21.11 is significantly below both the 200-Day moving average of $23.41 and the 50-Day moving average of $23.23, indicating a bearish trend.

The price is also below the main and minor support levels at $22.36 and $22.84, respectively.

While the current price has breached trend line support at $22.34, triggering an acceleration to the downside, it’s important to note that it’s considerably distanced from the trend line resistance at $24.77.

Given that the price is underperforming relative to these key technical levels, the market sentiment for silver appears to be decidedly bearish in the short term.