Silver (XAG) Forecast: Silver Outlook Hinges on Dollar and Yield Reversal

Spot Silver Rebounds After Sharp Sell-Off, But Headwinds Remain

Spot Silver (XAGUSD) started the week trading in the mid-$74 to $75 range and got hit hard by Wednesday. Buyers stepped back in on Thursday and clawed back part of the decline but prices are still lower for the week.

The 10-Year U.S. Treasury yield stayed elevated near 4.5%. The U.S. Dollar Index picked up ground all week. Rate-cut expectations that were supporting precious metals earlier this year have completely evaporated.

Spot Gold (XAUUSD) broke down and silver followed it lower. When yields, the dollar, and Fed expectations all move against precious metals at the same time, silver takes the worst of it. That is what happened this week.

Rising Yields and Stronger Dollar Pressure Silver

The 10-Year U.S. Treasury yield held near elevated levels all week. The U.S. Dollar Index gained on economic data that kept showing a resilient economy. Both moved in the wrong direction for Spot Silver (XAGUSD). Earlier this year the market was pricing multiple Fed rate cuts. That gave silver a tailwind. Those cuts are not coming. Policymakers made it clear this week that rates stay where they are until inflation cooperates. The futures market has repriced and real odds of a rate hike are now on the table. Silver went from trading a rate-cut setup to trading a higher-for-longer reality. The selling all week reflected that shift.

Spot Gold Decline Drags Silver Lower

Spot Gold (XAUUSD) broke down this week and Spot Silver (XAGUSD) got hit harder. That is how it always works. Gold leads and silver amplifies the move. Every session that gold sold off this week, silver sold off faster. Traders pulled exposure across the precious metals space and silver absorbed the worst of the liquidation. The mid-week decline was the sharpest move and it came on the same day gold sellers were pressing the hardest.

Traders Lighten Up Ahead of Payrolls

Friday’s Nonfarm Payrolls report added to the selling pressure before it even printed. Traders do not carry large positions into a number that can move the 10-Year U.S. Treasury yield, the U.S. Dollar Index, and Fed expectations all at once. The liquidation ahead of the report helped drive Wednesday’s sharp decline.

Bargain hunters stepped in Thursday and put a floor under prices but the damage for the week was already done. The positioning was defensive going into the number and that defensive posture added to the selling that was already in place from yields and the dollar.

Industrial Demand Supports Long-Term Floor

The short-term trade went against silver but the longer-term demand story has not changed. Solar panels, electronics, electric vehicles, and advanced manufacturing all keep pulling physical silver out of the market. Supply deficits have been a recurring theme for years. That demand was not enough to offset rising yields and a stronger U.S. Dollar Index this week but it is still the bid underneath the trade. It did not disappear. It just got outweighed. When the macro turns back in silver’s favor the industrial pull is still there waiting.

Daily Spot Silver (XAGUSD) Technical Analysis

Spot Silver is edging slightly higher on Thursday following yesterday’s steep sell-off. The main trend is up because of the higher-top, higher-bottom formation that extends back to late March. But since posting its last main top at $89.38 on May 13, the momentum has been to the downside with a lower minor trend.

Nearly all of the price action since May 15 has centered on trader reaction to the 50-day moving average at $76.15 today and the long-term 61.8% level at $74.63. Yesterday, prices fell sharply as both levels provided resistance. We’re looking at the same set up on Thursday with both levels remaining resistance.

The nearest support is layered at $71.84, $71.79 and the main bottom at $70.86. If the latter fails as support then the selling should extend into the 200-day moving average at $67.48, where a major decision will have to be made.

So my conclusion is, we’re looking at a downside bias as long as XAGUSD remains under the 50-day MA at $76.15. If selling pressure is strong enough to break the last main bottom at $70.86 then look for a near-term test of the 200-day MA at $67.48.

What to Watch

Friday’s Nonfarm Payrolls is the next catalyst for Spot Silver (XAGUSD). A strong number keeps the 10-Year U.S. Treasury yield elevated and the U.S. Dollar Index firm. Both stay directly on top of silver. A weak number is the only thing that changes the setup right now. If the jobs data softens, yields and the dollar pull back and silver gets room to recover part of this week’s decline. Until that report drops the rate-cut trade that was supporting precious metals is gone and the macro is lined up against silver on every front. Industrial demand is still there underneath but it is not enough on its own to turn the trade.

Spot Silver (XAGUSD) carries a downside bias as long as it stays under the 50-day moving average at $76.15. Nearly all of the price action since May 15 has centered on the reaction to that level and the 61.8% retracement at $74.63. Support layers at $71.84, $71.79, and the main bottom at $70.86. A break below $70.86 targets the 200-day moving average at $67.48 and that is where the next major decision gets made.

More Information in our Economic Calendar.