Silver (XAG) Forecast: Silver Market Targets $68.33 Breakout as Yield Pressure Eases

Spot Silver Breaks $67 as the Post-Fed Trade Reverses

The Fed raised rates Wednesday and silver is higher by Friday. That tells you the hike did not land the way sellers needed it to. Warsh kept inflation at the center of the decision, left another increase on the table and the metal sold off for exactly one session.

By Friday morning XAGUSD pushed through $67 because the oil, yield and dollar trades that were supposed to keep pressure on the metal all reversed at the same time. The rally is not coming from a single headline. It is coming from the whole setup that was working against silver earlier in the week falling apart.

At 08:22 GMT, Spot Silver (XAGUSD) is trading $67.07, up $1.85 or 2.84%. The session high is $67.13 and the low is $65.26.

Oil Is Falling for a Third Day and the Inflation Scare Is Cooling

WTI surged past $102 after the Saudi East-West pipeline was damaged last week. That drove the inflation argument that gave the Fed cover to hike and gave silver sellers their best week since the war started. Now crude is falling for a third session. Saudi Arabia said it was considering ship-to-ship transfers off Oman and indicated roughly half of the pipeline’s capacity could come back within days.

Crude near $100 is still expensive and the war premium has not disappeared. But the direction matters more than the level right now. Three days of lower oil prices after a week of surging crude changes the math on how hard the Fed has to lean. That recalculation is what brought silver buyers back to the table Friday morning. The oil story went from getting worse every day to getting slightly better and silver reacted to the shift before the data confirmed it.

The Hike Lasted One Session

The Fed lifted rates 25 basis points to 3.75%-4.00% Wednesday. First increase in three years. Warsh said inflation is too high and the committee left room for another move before year-end. Silver dropped after the announcement. By Thursday the selling was done.

That is a fast expiration date for a hawkish Fed meeting. Sellers had the rate decision, the statement and the press conference all working for them Wednesday afternoon. Twenty-four hours later buyers were back and by Friday morning they had pushed XAGUSD through the $67 level that had been resistance all month.

The hike is still on the books. Another one has not been ruled out. But traders are starting to ask whether falling oil prices reduce the urgency for the Fed to keep pressing. That question is what turned the post-Fed selloff into a two-day rally.

The Bond Market Gave Silver the Room

The 10-year yield hit 5.04% earlier in the week. Highest in 19 years. By Friday it had slipped to around 4.93% to 4.94%, near the low for the week. The 30-year also moved lower.

That retreat after a hawkish Fed decision is the single biggest reason silver is trading above $67 Friday morning. The dollar index is holding above 100 near a six-week high but it stopped climbing. It is digesting the Fed move instead of pressing higher on it. The combination of yields pulling back and the dollar stalling gave silver the opening. The metal did not need much help after spending the week getting hit from every direction. A pause in the pressure was enough.

The Middle East Has Not Gone Away

The conflict involving Iran, Saudi Arabia and the Houthis is still active. A tanker was struck in the Strait of Hormuz this week. Pipeline damage and repair efforts continue. Vessel traffic remains well below normal levels. The oil pullback came from Saudi workarounds, not a ceasefire.

That backdrop keeps a floor under silver even on days when the rate and yield stories are dominating the trade. The geopolitical risk is not resolved and another escalation would send crude right back toward the highs it hit earlier in the week. Oil going higher means the inflation trade comes back. The inflation trade coming back means yields climb again. Silver is rallying right now because that chain is running in reverse. The risk is that it starts running forward again on one headline from the Strait.

Daily Spot Silver (XAGUSD) Technical Analysis

Spot Silver is higher early Friday, extending yesterday’s rally. The main trend is down according to the daily swing chart, however, the current rally is driven by counter-trend momentum after a successful test of a key 50% level, the 50-day moving average and a change in the minor trend to up.

A trade through $68.33 will change the main trend to up. A move through the new main bottom at $62.31 will signal a resumption of the downtrend.

The short-term range is $54.78 to $71.18. Its retracement zone at $62.98 to $61.04 is support. The upper level at $62.98 was tested and recovered on Wednesday. The 50-day moving average also comes in at $62.98, creating a support cluster.

Earlier today, Spot Silver established support at the 50% level at $65.32, setting up the rally to the next 50% level at $66.97. Overtaking this barrier puts the main top at $68.33 in play.

What to Watch

Silver broke $67 after the Fed’s rate hike failed to keep the metal down for more than one session. The oil pullback did the heavy lifting by taking the immediate inflation urgency out of the trade. Whether this breakout holds depends on whether crude stays below Tuesday’s highs and whether the 10-year yield keeps drifting away from 5%. A reversal in either one puts the inflation argument back in front of the Fed and takes the relief trade away from silver fast.

The near-term bias has shifted to the upside with the minor trend now pointing up and silver trading above the 50% levels at $65.32 and $66.97. The main top at $68.33 is the level that changes everything. A push through it flips the main trend to up and turns this week’s counter-trend rally into something the bears have to respect as a potential trend change. Sellers will try to defend that level because losing it opens the upside in a way that a $67 breakout alone does not.

On the downside, a move back under $65.32 tells traders the rally was a response to falling yields and nothing more with the support cluster at $62.98 and the 50-day moving average as the last line before the main bottom at $62.31.

More Information in our Economic Calendar.