Silver (XAG) Forecast: Silver Market Reacts to Powell, Direction Hinges on $74.63

Silver Bounces but This Looks More Like Relief Than a Reversal

Spot Silver (XAGUSD) is edging higher on Tuesday as the market continues to recover from last week’s steep sell-off that drove prices to their lowest level since December 10. However, this looks more like a technical bounce due to oversold conditions rather than a major fundamental turning point.

Technical Outlook

The main trend is down according to the daily swing chart with major tops at $121.67 and $96.43 and potentially a major bottom at $61.00. The moving averages are giving a mixed picture, depending on your time perspective. The market is currently on the weak side of the 50-day moving average at $83.63, making it resistance. The 200-day moving average is providing support at $58.49, while controlling the long-term trend.

Retracement levels are also influencing the price action. I’ve identified the key range as $45.55 to $121.67. Its retracement zone at $74.63 to $83.61 is providing resistance inside the moving average range.

The major retracement level support is $60.83. It is 50% of the all-time high. If you recall, buyers came in last week at $61.00, fueling a two-day rally to $74.57.

I think the key level to watch this week is the 61.8% price at $74.63. Overtaking this with conviction could create enough upside momentum to trigger a strong rally into the resistance cluster at $83.61 to $83.63.

If we don’t get a bullish catalyst soon, sellers are likely to take control, making the market vulnerable to a retest of the wide support zone at $61.00 to $58.49.

Headlines Are Driving This Market More Than Fundamentals

Fundamentally, I think bullish traders have been doing a great job at stabilizing the silver market after a rough stretch, but it still feels like the price action is being driven more by headlines than a bona fide bullish catalyst. Although the bias is to the downside right now, I don’t feel it’s in a clean bearish trend. It’s hard to tell if we’re setting up for the next rally, or just reacting to shifts in rates, geopolitics, and expectations around the Fed. And, by the way, those appear to be the three main factors influencing the price action. To be more specific, today’s movement seems to be the product of comments from Fed Chair Powell, President Trump and geopolitical risks and the move in yields.

Powell Cooled the Rate Hike Fear and Silver Responded

On Monday, Powell may have lifted the pressure off the market when he made it clear the Fed is not in a rush to hike rates just because oil prices are rising. For most of March, silver struggled as traders feared higher rates would stick around or even move higher. But Powell cooled that expectation. The latest data shows the markets have basically priced out a rate hike this year, which removes a major headwind for silver.

Trump’s Iran Comments Are Adding to the Relief

President Trump is providing another key piece to the sentiment narrative. Today, he reportedly said the U.S. could move toward ending hostilities with Iran and that helped risk sentiment. However, even if the war ended today, oil prices are likely to remain elevated. This creates a mixed picture for silver traders.

On one hand, ending the war reduces the chances of more panic selling. On the other, high oil prices are inflationary. Both the end of the war and elevated inflation could actually be supportive for silver because it will keep an aggressive Fed on the sidelines for longer.

Finally, Trump’s comment was enough to push Treasury yields lower and silver traders responded accordingly by edging higher on Tuesday. Although the move didn’t trigger a breakout to the upside yet, it is providing some relief, which is giving traders a reason to continue with the consolidation.

Watch $74.63 — That Level Decides the Next Move

Looking ahead, near-term analysis shows silver is being supported, but it’s just not ready to rally yet. If yields can stay contained and the Fed holds its position, then I’ll be watching for buyers coming in on dips. However, if the dollar remains strong, then silver may just grind higher instead of accelerating to the upside. Technically, it looks as if trader reaction to $74.63 is likely to determine the next move.

More Information in our Economic Calendar.