Silver (XAG) Daily Forecast: Drops to $30.40 Amid Fed’s Hawkish Stance; Buy Now?

By:

Arslan Ali

Updated: May 23, 2024, 07:23 GMT+00:00

Key Points:

Silver price declines to $30.39 due to Fed's restrictive monetary policy and a strong dollar.
Traders await US PMI data; weak readings could boost rate cut expectations and precious metals.
Geopolitical tensions and persistent inflation could support precious metals, limiting downside.

In this article:

Silver

-0.50%

Market Overview

The silver price (XAG/USD) continued its decline, trading near $30.39 and reaching an intraday low of $30.25. This drop is primarily due to the US Fed’s commitment to maintaining restrictive monetary policy, strengthening the US dollar, and pressuring dollar-denominated silver and gold.

Looking ahead, traders will monitor the preliminary US Manufacturing and Services Purchasing Managers Index (PMI) for May. A weaker reading could increase expectations for Fed rate cuts, potentially boosting gold. Conversely, ongoing geopolitical tensions and persistent inflation could support precious metals, limiting further downside.

Recent FOMC Minutes and Economic Data

Recent FOMC meeting minutes revealed concerns about inflation not meeting the 2% target despite some easing over the past year. This suggests the possibility of delayed rate cuts. Participants agreed to maintain the current federal funds rate range due to signs of ongoing solid economic growth.

Investors anticipate the first rate cut in September and expect two quarter-point reductions before year-end, based on the CME FedWatch Tool, which currently indicates a nearly 60% probability of such moves.

The hawkish stance of the Federal Open Market Committee (FOMC) minutes, indicating a potential interest rate hike or tighter monetary policy, put pressure on silver prices. Higher interest rates increase the opportunity cost of holding non-yielding assets like silver, making them less attractive to investors.

A hawkish stance also suggests a stronger US dollar, which typically weighs on the price of silver since it is denominated in dollars.

US S&P Global Manufacturing PMI: Expected to stay at 50.0, indicating stagnant growth.
Service PMI for May: Forecasted to remain at 51.3, reflecting minimal change in the sector.
Hawkish FOMC Stance: Potential for interest rate hikes or tighter monetary policy, pressuring silver prices.
Investor Expectations: A first-rate cut is anticipated in September, with two quarter-point reductions before year-end.

Overall, the cautious approach of the US Fed and the stronger dollar are putting downward pressure on silver prices, while the economic data suggests stable but not improving conditions.

Short-Term Forecast

Silver is likely to remain under pressure, trading near $30.39 due to the Fed’s hawkish stance and a strong US dollar. Immediate support is at $29.80, with resistance at $30.97. Expect bearish momentum below $30.25.

Silver (XAG/USD) Price Forecast: Technical Outlook

Silver Price Chart

Silver is trading at $30.39, down 1.29%. On the 4-hour chart, the pivot point is $30.26. Key resistance levels are $30.97, $31.49, and $32.24, while support levels are $29.80, $29.23, and $28.81. The 50-day EMA stands at $31.03, and the 200-day EMA is at $29.31.

Technically, silver has gained support around the $30.26 level, with a doji candle formation suggesting a potential bullish bounce. However, silver has also broken below an upward trend line near $30.97, indicating resistance at this level. The 50-day EMA also suggests resistance around $30.95.

Given the current market conditions, silver has the potential to bounce above the $30.25 level, targeting $31. However, the overall trend remains bearish, and a break below $30.25 could lead to a decline towards the support levels of $29.79 and $29.23, with the latter being extended by the 200-day EMA. Silver remains bullish above $30.26, but a break below this level could drive a sharp selling trend.

About the Author

Arslan Aliauthor

Arslan is a finance MBA and also holds an MPhil degree in behavioral finance. An expert in financial analysis and investor psychology, Arslan uses his academic background to bring valuable insights about market sentiment and whether instruments are likely to be overbought or oversold.

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