Silver (XAG) Forecast: Silver Holds Steady Despite Rising Yields and Oil

Spot Silver Holds Steady Monday as Yields, Dollar and Oil All Push the Wrong Way

Spot Silver (XAGUSD) is trading at $80.41, up $0.07 or 0.08% early Monday and the fact that it is not lower tells you something. Treasury yields are climbing. The U.S. Dollar Index is firming up. Spot Brent crude oil pushed back above $103 a barrel after Trump rejected Iran’s latest peace proposal. Three things that normally pressure silver are all moving in the wrong direction at once and silver is barely moving. That is not a bearish setup. That is a market with something underneath it.

Technical Outlook

Spot Silver is trading flat early Monday after giving back earlier gains. The market is posting an inside move for a second straight session, indicating trader indecision and impending volatility.

At 10:25 GMT, Spot Silver (XAGUSD) is trading $80.41, up $0.07 or +0.08%.

Unlike spot gold, which is clearly showing weakness, silver is being propped up because it is trading on the strong side of its 50-day moving average at $76.94, which is support. If it can consolidate above this indicator, buyers will have a shot at last week’s high at $82.13, the April 17 top at $83.06 and the long-term 50% level at $83.61. They are all headwinds right now, but the latter is also a potential trigger point for a breakout to the upside with $91.34 a target.

On the downside, it’s all about the 50-day MA. Crossing to the weak side of this indicator will put the market in a position to challenge the long-term 61.8% level at $74.63, followed by a short-term retracement zone at $72.03 to $69.43.

Silver has made a nice recovery from $70.86 to $82.13 in a short period of time. The move has traders eyeing higher prices too. However, if bullish traders don’t start taking out offers, this rally will die on the vine like the one in mid-April.

I am leaning to the upside at this time because Spot Silver (XAGUSD) is trading on the bullish side of the 50-day MA and I see an identifiable trigger point for an upside breakout at $83.61. If the 50-day fails then look for more choppy trading.

Three Bearish Drivers and Silver Is Still Standing

The 10-Year U.S. Treasury yield pushed back above 4.38% Monday. The 2-Year climbed toward 3.92%. Friday’s nonfarm payrolls came in at 115,000, nearly double consensus forecasts, and the unemployment rate held at 4.3%. That combination locked in the higher for longer narrative for another week and bond traders are pricing it in. Silver pays nothing. When yields are at these levels investors have a paying alternative and the default move is to take it. The fact that Spot Silver (XAGUSD) is barely lower Monday despite all of that tells me the dip buyers are still active.

The Dollar Is Adding Pressure but Not Breaking Silver

The U.S. Dollar Index firmed up after the jobs report gave the greenback a reason to run. A stronger dollar makes Spot Silver (XAGUSD) more expensive for every buyer outside the United States and that demand fades fast when the dollar is moving higher. Monday the dollar is pressing and silver is not cracking. That matters. When a market refuses to break under the weight of multiple bearish drivers it is telling you the sellers are not in control even if the bulls are not running either.

Oil Is the Complicated Driver

Trump rejected Iran’s latest peace proposal Monday and called the response “totally unacceptable.” Spot Brent crude oil moved back above $103 a barrel immediately. For Spot Silver (XAGUSD) that creates a problem that cuts both ways. Higher oil raises inflation expectations and sometimes pulls precious metal buyers in. But higher oil also keeps the Fed pinned, yields elevated and the dollar firm. Right now the market is focused on the second outcome more than the first. As long as crude stays at these levels the Fed has no room to move and silver has no rate tailwind to lean on.

The Industrial Demand Risk Nobody Is Talking About

Silver is not gold. It has a large industrial component tied to manufacturing, electronics, solar production and electric vehicles. If crude oil stays elevated long enough to start damaging economic activity, that industrial demand story gets complicated fast. Analysts are starting to talk about demand destruction if energy prices keep climbing. I am not there yet but I am watching it. A slowdown in manufacturing demand hits silver from a completely different direction than the rate story and the two together would be a serious problem for this market.

What I’m Watching

The 50-day moving average at $76.94 is the floor. Spot Silver (XAGUSD) is trading on the bullish side of it and that is the only reason I am leaning toward the upside right now. Hold above it and the path toward $82.13, $83.06 and the breakout trigger at $83.61 stays open. Lose it and the long-term 61.8% level at $74.63 becomes the first test with the short-term retracement zone at $72.03 to $69.43 behind it.

Tuesday’s Consumer Price Index report is the next event that matters. A soft number takes pressure off yields and the dollar and gives silver the macro support it has not had since last week. A hot number and the three bearish drivers that are already pushing against this market get a fourth one added to the list.

More Information in our Economic Calendar.