Silver (XAG) Forecast: Silver Market Awaits NFP as Rate Hike Fears Return

Spot Silver Drops Ahead of Jobs Report

Spot Silver (XAGUSD) is lower on Friday and on track to close sharply down for the week. Prices are hovering just above short-term support at $71.84 after taking out the minor bottom at $71.79 early in the session. The 10-Year U.S. Treasury yield is still elevated near 4.5%. The U.S. Dollar Index is firm. Friday’s Nonfarm Payrolls decides whether the selling pressure stays or the rate-cut trade comes back to life.

Everything that has been working against Spot Silver (XAGUSD) this week gets confirmed or reversed in one number.

Nonfarm Payrolls Sets the Direction

The May Nonfarm Payrolls report is the most important piece of data for Spot Silver (XAGUSD) right now. A strong number keeps the 10-Year U.S. Treasury yield elevated and the U.S. Dollar Index firm. Both have been sitting on top of silver all week.

A weak number flips the setup. Soft jobs data brings the rate-cut trade back to life, pulls the 10-Year U.S. Treasury yield lower, and gives Spot Silver (XAGUSD) room to recover part of this week’s decline.

Traders have been lightening positions all week ahead of this number. Nobody wants to carry a large silver position into a report that can move yields, the dollar, and Fed expectations all at once. The liquidation ahead of the release has been adding to the selling pressure on top of what was already a difficult week.

Strong Labor Data Keeps Yields Elevated

The 10-Year U.S. Treasury yield held near 4.5% heading into Friday. The U.S. Dollar Index found support from expectations that rates stay higher for longer. Both are direct negatives for Spot Silver (XAGUSD).

Earlier this week ADP reported 122,000 private-sector jobs added in May. That beat expectations. Job openings jumped to their highest level in nearly two years. The labor market data keeps telling the same story. The economy is not slowing fast enough to give the Fed cover to cut. That keeps yields elevated and the dollar firm and both keep pressing silver lower.

Fed Officials Leave Rate Hikes on the Table

Cleveland Federal Reserve President Beth Hammack said rate hikes are still possible if inflation does not cooperate. She pointed directly at energy costs as the risk. Other Fed officials reinforced the same message this week. Rates stay where they are until inflation moves back toward target. Some left the door open to additional tightening.

Two rate cuts priced in at the start of the year. That is gone. The futures market flipped to pricing real odds of a hike and Spot Silver (XAGUSD) has been repricing that shift all week. The positioning that was built for a relief trade is on the wrong side now and the selling reflects it.

Rising Crude Oil Keeps Inflation Case Alive

West Texas Intermediate crude oil stayed near $95 a barrel this week. Spot Brent crude oil held near $97 before pulling back Thursday on the Israel-Lebanon ceasefire. Crude oil at these levels feeds directly into inflation through transportation costs, manufacturing costs, and consumer prices.

Silver is supposed to hedge inflation. It is not doing that right now. The problem is the Fed. Crude oil near $95 a barrel gives Hammack and the rest of the committee cover to stay restrictive and that policy response is what is actually hurting the metal. Silver does not get to play inflation hedge when the central bank is using inflation as the reason to keep rates elevated. That trap does not break until crude oil comes down far enough to take the argument away from the hawks.

Daily Spot Silver (XAGUSD) Technical Analysis

Spot Silver is edging lower on the daily chart early Friday, putting it in a position to close sharply lower for the week.

The market is currently hovering just above a short-term Fibonacci level at $71.84 after taking out a minor bottom at $71.79 early in the session. The key downside target is the main bottom at $70.86. A trade through this level will change the main trend to down, putting the 200-day moving average at $67.65 on the radar.

On the upside, the near-term resistance is thick with retracement levels coming in at $74.63, $75.19 and $77.01. The major resistance and trigger point for an acceleration to the upside is the 50-day moving average at $76.25.

Overtaking the 50-day MA will be the first sign of strength, while crossing the strong side of the minor top at $78.83 could trigger buy stops and attract new buyers until $83.61.

Traders have gotten used to passively bidding on dips, which has prevented the major washout to the downside, but they haven’t been chasing the market higher. Until they start aggressively taking out offers, it’s doomed to drift lower.

What to Watch

Friday’s Nonfarm Payrolls decides everything for Spot Silver (XAGUSD). A strong number keeps the 10-Year U.S. Treasury yield near 4.5% and gives the U.S. Dollar Index another reason to hold. Both have been pressing silver all week and a jobs beat gives them room to keep going. That does not change until the data breaks.

A weak number is the only thing that changes the setup. Soft jobs data brings rate-cut expectations back, takes the pressure off yields, and gives precious metals room to recover. West Texas Intermediate crude oil near $95 a barrel keeps the inflation story alive in the background. As long as crude oil stays elevated the Fed has no room to cut regardless of what the jobs data shows. Cleveland Federal Reserve President Beth Hammack made that clear this week when she pointed at energy costs and left rate hikes on the table.

Spot Silver (XAGUSD) is hovering just above support at $71.84 after taking out $71.79 early Friday. The main bottom at $70.86 is the next target. A break below it changes the main trend to down and puts the 200-day moving average at $67.65 on the radar.

Resistance is thick above with levels at $74.63, $75.19, and $77.01. The 50-day moving average at $76.25 is the trigger for any acceleration to the upside. Until buyers start taking out offers instead of passively bidding on dips, Spot Silver (XAGUSD) keeps drifting lower.

More Information in our Economic Calendar.