Silver (XAG) Forecast: Silver Market Awaits Warsh as Rate-Hike Risk Builds

Silver Sits Still While the Fed Loads the Gun

Silver is not moving ahead of Wednesday’s Federal Reserve decision and the flat trade is not confidence. Spot silver is down $0.06 or 0.10% to $57.05 at 16:30 GMT with the market parked in a holding pattern less than two hours before the rate announcement at 18:00 GMT and Chair Kevin Warsh’s press conference at 18:30 GMT.

There is no Summary of Economic Projections and no dot plot this meeting. Every bit of direction comes from the statement, any dissents and whatever Warsh says about inflation, energy and September. That puts the entire session in his hands.

The Hold Is Priced, September Is Not

FedWatch has the probability of holding the 3.5% to 3.75% range near 64%. The other third of the market is pricing a quarter-point hike today. A hold by itself is not going to move silver because that is already the base case.

September is the number that matters. Dallas Fed President Lorie Logan has said rates should be modestly higher. Cleveland’s Beth Hammack, Minneapolis’s Neel Kashkari and Governor Christopher Waller have all left room for tightening if inflation does not improve. Any of those names dissenting on the hold would tell the market that the internal debate is further along than the headline decision suggests, and Warsh would spend the press conference explaining why the Fed waited rather than why it is considering action. That distinction changes the tone of every answer he gives.

Economist Claudia Sahm expects the statement to signal that policy firming may be needed soon if inflation stays elevated and the labor market holds. If that language shows up, the rate market takes it as confirmation and September expectations firm from here.

Oil Made Wednesday’s Press Conference Harder

Crude is up nearly 7% after Iran launched missiles at U.S. forces and President Trump said the United States will respond hard. Warsh was already facing questions about inflation. Now he is facing them with energy prices running in the wrong direction on the day of the decision.

The oil move matters for silver because it forces the inflation question to the front of the press conference. A measured tone from Warsh was the bullish scenario coming in. Crude near $90 makes measured harder to deliver and easier for the market to dismiss even if he tries. The dollar is still carrying long positioning from two weeks of rate repricing, and if Warsh somehow avoids escalating the inflation message, those longs could start unwinding fast. Silver would catch that bid. But the setup walking in favors the hawks, and the oil spike gave them the headline they needed.

A Quiet Warsh Is Silver’s Only Path Higher

The bullish case is not just a hold. It is a hold where Warsh avoids pushing September closer, acknowledges the recent improvement in the inflation data before the oil spike, and gives the market a reason to think the Fed has time. Dollar longs would take profits. Yields could ease. Short-covering in silver would add to the move because traders have been leaning against the metal into this meeting.

I am not counting on it after what the oil market did this morning. The path is there, but Warsh has to walk it with crude up 7% and the President escalating the military response on the same afternoon. That is a narrow window, and the market’s decision to sit flat rather than bid silver ahead of the announcement tells you how much conviction the bulls have right now.

Daily Spot Silver (XAGUSD) Technical Analysis

The series of lower-tops and lower-bottoms as well as the two-month trade on the weak side of the 50-day moving average at $64.35 tell us that the main trend is down in the spot silver market. The market is also trading on the bearish side of the long-term 50% level at $60.835.

The new minor range is $54.77 to $60.94. The market has been trading in the vicinity of its retracement zone at $57.85 to $57.01 for four days. Trader reaction to this area is likely to determine the direction of the market into the close today and perhaps over the near-term.

A sustained move under $57.01 will signal the presence of sellers. If this creates enough downside momentum then look for a possible test of the nearest swing bottom at $54.77. Taking this level out with conviction could launch silver toward the long-term 61.8% level at $46.48.

A sustained move over $57.85 will indicate the presence of buyers. This could create the momentum needed to challenge $60.835 then the last swing top at $60.94. This is a potential trigger point for an acceleration into the 50-day moving average at $64.35.

What to Watch

Warsh’s press conference determines whether the rate pressure that has been building against silver for two weeks gets validated or starts to crack. The statement and any dissents set the table, but the Q&A is where the market finds out if September is getting closer or if the Fed still thinks it has room to wait. Oil running higher on the day of the decision puts Warsh in a position where the inflation question answers itself before he opens his mouth, and the hawks on the committee already have the language on record to support moving sooner.

Silver has been sitting in a narrow range around its retracement zone for four sessions and the Fed is the catalyst that breaks it one way or the other. The downtrend is intact with the 50-day well above the market, but the higher bottom near the recent lows shows buyers defended that level. Whether they defend it again depends on what Warsh says in less than two hours.

More Information in our Economic Calendar.