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Silver Prices Forecast: XAG/USD Undermined by Soaring U.S. Yields

By:
James Hyerczyk
Published: Sep 6, 2023, 07:39 GMT+00:00

As the U.S. dollar nears a six-month high, silver's value, particularly the XAG/USD spot, feels the pinch of global economic pressures.

Silver Prices Forecast

In this article:

Highlights

  • Silver hits a low unseen since August 23rd, challenged by the rising U.S. dollar.
  • The dollar’s six-month peak is aligned with a surge in U.S. Treasury yields.
  • Growing apprehensions over China’s economic health are pressuring global markets.

U.S. Dollar’s Rise Pressures Precious Metals

Silver (XAG/USD) prices experienced a significant downturn on Wednesday, reaching their lowest since August 23rd. This drop coincides with the U.S. dollar approaching a six-month high and a surge in U.S. Treasury yields. The prevailing sentiment suggests an ongoing demand for high-interest rates, largely fueled by concerns surrounding China’s economic status and worldwide growth. Consequently, silver, similar to gold, becomes less accessible for those holding foreign currencies.

Market Concerns Amidst Economic Indicators

As trading resumed post-Labor Day, all eyes turned to the mounting U.S. Treasury yields. Notably, oil prices are on an upward trajectory, rekindling fears of the $100 benchmark. Wall Street is apprehensive, predicting stocks will find it challenging to outpace Treasuries. The backdrop to this market tension is last Friday’s nonfarm payrolls report, which indicated a peak in unemployment rates since early 2022 and declining hourly earnings, causing a shift in investors’ views on inflation and Federal Reserve policies.

Federal Reserve Deliberations

In light of recent economic indicators, including a cooling labor market, the impending Federal Reserve policy meeting is generating buzz. Most market pundits, informed by Governor Christopher Waller’s remarks, predict no changes in interest rates. As of now, the CME FedWatch tool signals a 93% likelihood of rates remaining constant. Speculation also surrounds the potential for additional tightening later in the year, contingent on forthcoming economic data.

Global Business Decline and the U.S. Dollar’s Ascendance

Recent reports indicate a slowing global business landscape, bolstering the appeal of the U.S. dollar as a stable asset over precious metals like silver and gold. Confirming this sentiment, the SPDR Gold Trust, a leading gold-backed exchange-traded fund, registered a 0.1% drop in its holdings.

Silver Outlook: A Cautionary Tale

The intersecting forces of burgeoning U.S. interest rates, soaring Treasury bond yields, and a robust U.S. dollar forecast a bearish short-term future for silver. The increased opportunity costs associated with retaining unyielding silver, in conjunction with impending policy shifts, cement a gloomy prediction for this precious metal.

Technical Analysis

4-Hour Silver (XAGUSD)

The current 4-hour price of 23.41 sits below both the 200-4H moving average (23.75) and the 50-4H moving average (24.24), indicating a bearish trend. The 14-4H RSI at 30.74 suggests the commodity is nearing oversold conditions, signaling potential exhaustion in the recent downward momentum.

Furthermore, the price remains above the main support zone (22.70 to 22.28) but has room before reaching the main resistance (25.00 to 25.27). No minor support or resistance levels have been identified. Collectively, these technical indicators suggest a currently bearish sentiment for Silver on a 4-hour chart perspective.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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