Silver Prices Forecast: XAG/USD’s Surge Pauses Ahead of Key Labor Market Data

Weekly Momentum Slows

Silver’s remarkable five-session surge, which set it up for a third consecutive weekly rise, saw a pause on Thursday with a reversal top and follow-through selling on Friday. Market attention turned to the upcoming U.S. non-farm payrolls data, anticipated to provide further insights into the Federal Reserve’s monetary policy direction. Despite this shift, silver remained in overbought territory, signaling a potential correction soon. However, the metal is expected to maintain its firmness, with usual market pull-backs.

At 11:42 GMT, XAG/USD is trading $26.73, down $0.18 or -0.68%.

Influencing Factors

Several factors have been propelling silver’s market performance. Record-high gold prices, increased central bank buying, and momentum-driven fund demand have contributed to its upward trend. The declining U.S. dollar, anticipated Federal Reserve rate cuts, economic uncertainties, and escalating tensions in the Middle East have further spurred market interest in silver.

Federal Reserve and Economic Indicators

The Federal Reserve’s stance remains pivotal. Fed Chair Jerome Powell highlighted the need for careful consideration before implementing the first rate cut, citing the economy’s strength and recent high inflation rates. Market expectations are leaning towards a 60% probability of a rate cut by June, as per the CME FedWatch tool. This scenario lowers the opportunity cost of holding bullion, making silver more attractive.

Bond Market Movements

U.S. Treasury yields have shown slight increases ahead of the crucial non-farm payrolls data. The 10-year Treasury yield saw a marginal rise, following a recent peak. Similarly, the 2-year Treasury yield edged up slightly, emphasizing the inverse relationship between yields and prices.

Employment Data and Monetary Policy

The non-farm payrolls report, expected to show a job growth of 212,000 in March, is a key factor in shaping expectations for Federal Reserve rate cuts. Despite some Fed officials expressing doubts over imminent rate cuts if inflation remains high, the market is not expecting changes in the May meeting but sees a potential cut in June.

Currency Markets and Geopolitical Tensions

The U.S. dollar has stabilized after a volatile week, influenced by mixed signals regarding U.S. economic growth and interest rate expectations. Upcoming jobs and inflation data will be crucial in determining the Fed’s policy in the upcoming meetings. Geopolitical tensions, especially in the Middle East, have also heightened market caution, influencing currency and commodity markets.

Short-Term Market Forecast

Considering these factors, the short-term forecast for silver appears cautiously bullish. The combination of macroeconomic indicators, monetary policy expectations, and geopolitical developments suggests a continued interest in silver as a safe-haven asset, albeit with potential for short-term corrections due to market overbought conditions.

Technical Analysis

Thursday’s potentially bearish closing price reversal top has helped form a trading range for XAG/USD. While a trade through the high at $27.34 will signal a resumption of the uptrend, continued selling pressure could lead to a short-term test of a key 50% level at $25.83. Ultimately, it will be trader reaction to a test of this level that determines the near-term trend.