Silver (XAG) Forecast: Silver Market Turns Defensive on Fed Uncertainty

Spot Silver Slides as Yields and Dollar Keep the Pressure On

Spot Silver (XAGUSD) is trading at $74.69 early Thursday, down $1.16 or 1.53%. Weekly losses have extended to 1.62% after trading in a $73.09 to $78.89 range. The setup has not changed. Treasury yields are elevated. The U.S. Dollar Index is firm. Silver pays nothing and the market keeps reminding traders of that every session.

Technical Outlook

Spot silver is in an uptrend according to the daily swing chart, but momentum is trending lower. A trade through $70.86 will change the main trend to down. A move through $89.38 will reaffirm the uptrend. The short-term range is $70.86 to $89.38. Its retracement zone at $81.24 to $83.16 is a potential upside target.

The intermediate range is $61.00 to $89.38. The market is currently testing its retracement zone at $75.19 to $71.84.

The long-term range is $45.55 to $121.67. Spot Silver (XAGUSD) has been straddling its retracement zone at $83.61 to $74.63 for more than four months.

For the past three sessions, spot silver has been straddling a price cluster formed by the long-term 61.8% level at $74.63 and the intermediate 50% level at $75.19.

Moving average analysis is showing a similar rangebound trade. Since February, the 50-day moving average at $76.11 has provided resistance and the 200-day moving average at $65.61 has provided the support. There have been attempts to overcome the 50-day MA. Each one has fueled a strong spike to the upside, but they haven’t been sustainable, leading to a collapse back to the 50-day MA.

With the 200-day MA controlling the long-term direction, there is a slight bias to the upside, but the inability to sustain a rally over the 50-day MA means the bias isn’t that strong. Furthermore, trading at the lower end of the long-term retracement zone is also symptomatic of weak buying.

We’re getting close to a 50-day/200-day MA crossover and the way things are looking at this time, it looks as if we could be setting up for an acceleration to the downside.

As for today, the tone of the market is likely to be determined by trader reaction to the 50-day MA. An extended move above it could lead to a test of $81.24 to $83.61, where it is likely to run into selling pressure again.

A sustained move under the 50-day MA will indicate the presence of sellers, but don’t expect much of a sell off if $70.86 remains intact. Furthermore, buyers are likely to be waiting for a major test of the 200-day MA.

My overall assessment, continue to look for a choppy, two-sided trade.

Yields Are Winning the Argument

The 10-Year U.S. Treasury yield staying elevated is the single most important factor working against Spot Silver (XAGUSD) right now. Silver pays nothing. When fixed income is offering meaningful returns with virtually no credit risk, the argument for holding a non-yielding metal gets harder to make every session. Traders who were positioned for rate cuts earlier this year have spent the past several weeks unwinding those positions and silver has absorbed the selling that comes with every exit.

The rate cut story that supported metals through much of the first quarter is not the story anymore. Persistent inflation and a Federal Reserve with no clear path to easing have replaced it. Until that changes silver is fighting the rate environment on every session it tries to rally.

The Dollar Is the Second Headwind

The U.S. Dollar Index staying firm adds a second layer of pressure. Silver is priced globally in dollars and a stronger dollar makes it more expensive for every buyer outside the United States. That demand fades quietly at first and then accelerates when the dollar adds to its gains. The combination of elevated yields and a firm dollar is not a setup that rewards aggressive buying in non-yielding assets and the price action this week reflects that clearly.

What Changes the Picture

The Federal Reserve outlook is the mechanism that reverses this trade. Softer inflation data or signs of slowing economic growth shift rate expectations and give silver room to run. Any indication that the Fed is moving closer to easing would likely attract buyers back quickly because positioning in silver has already been reduced significantly. The weak hands have largely exited. A genuine catalyst brings the sidelined money back fast.

Until that catalyst arrives the macro conditions favor the bears. Persistent inflation, elevated yields and a firm dollar are all pointing in the same direction and none of those are reversing on their own without a change in the data.

What I’m Watching

The inflation data and Federal Reserve signals are the fundamental drivers that decide whether silver can find a floor or continues lower.

On the chart the 50-day moving average at $76.11 is the line that sets the daily tone. A sustained move above it opens the door toward $81.24 to $83.61 where sellers are likely to reemerge. Lose the 50-day MA and $75.19 to $71.84 becomes the test with $70.86 behind it as the level that changes the main trend to down. The 200-day moving average at $65.61 is the long-term floor.

A choppy two-sided trade is the most likely outcome until the rate picture shifts or the dollar gives back meaningful ground.

More Information in our Economic Calendar.