Silver (XAG) Forecast: Economic Slowdowns in China and US Pose Risks to Silver Outlook

Silver Prices Edge Higher as Markets Reassess Economic Outlook

Silver prices inched up on Wednesday, driven by safe-haven demand and increasing expectations of a Federal Reserve rate cut as early as September. However, gains were limited by a rebounding U.S. dollar and rising Treasury yields.

At 11:22 GMT, XAG/USD is trading $27.13, up $0.17 or +0.61%.

Industrial Demand Concerns

Despite the modest uptick, skeptics note that silver’s gains may be capped by anticipated economic slowdowns in China and the United States, potentially dampening industrial demand. This factor remains a key consideration for traders assessing the metal’s long-term prospects.

Fed Rate Cut Expectations

Traders have adjusted their rate cut expectations following last week’s soft jobs report. The CME FedWatch Tool now indicates a 100% chance of a rate cut in September, with nearly 105 basis points of cuts anticipated by year-end. This outlook for looser monetary policy provides support for silver as a non-yield-bearing asset.

Treasury Yields and Dollar Movements

Treasury yields climbed early Wednesday as global markets continued to reverse course from a dramatic equity sell-off earlier in the week. The benchmark 10-year Treasury yield rose over 4 basis points to 3.9354%. Simultaneously, the dollar index inched away from a seven-month low touched on Monday, potentially capping silver’s gains.

Yen’s Shifting Fortunes

The yen retreated 1% to 146.43 per dollar, moving away from the seven-month high it reached on Monday. This shift follows bouts of intervention from Tokyo and a hawkish pivot by the Bank of Japan, which led investors to unwind popular carry trades. This could lift some of the pressure on assets like stocks and silver.

Market Forecast

While silver prices are attempting to establish new support above the key pivot at $27.23, the short-term outlook remains cautiously bearish. Traders are seeking the next catalyst to reverse the recent downtrend, with some pointing to potential geopolitical tensions in the Middle East or more aggressive Fed rate cuts as possible drivers. However, the metal’s performance will likely be tempered by ongoing concerns about global economic growth and industrial demand.

Technical Analysis

Silver (XAG/USD) prices are trying to consolidate, following Monday’s steep sell-off. Standing in the way of a near-term rally is a major pivot at $27.23.

Overcoming and sustaining a move over $27.23 could trigger a near-term short-covering rally with potential targets another pivot at $29.54 and the 50-day moving average at $29.55. This combination forms a resistance cluster.

On the downside, the major long-term support is the 200-day moving average at $26.06. Look for a technical bounce on the intial test of this indicator and an acceleration to the downside if it fails convincingly.