Silver (XAG) Forecast: Silver Outlook Hinges on FOMC Minutes, $66.80 Breakout

Silver Ripped $3.50 Off the Low After Treasury Broke the Yield Rally

Spot Silver reversed hard Wednesday after the U.S. Treasury announced it will at least double the size of its longer-dated debt buybacks. The 30-year yield dropped immediately. The dollar broke lower. Silver went from testing the $62.56 area near the 50-day moving average to pressing $66.07 in the same session. That is a $3.50 intraday swing on one announcement.

The metal had been pinned down for days by rising long yields and a dollar that refused to break. Both changed Wednesday afternoon. The swing top at $66.80 is right above the session high and the midpoint pivot between the major moving averages is controlling the action near $66.54.

At 16:10 GMT, Spot Silver (XAGUSD) was trading at $66.05, up $2.73 or 4.3%.

The Buyback Hit the Exact Part of the Curve That Was Hurting Silver

Treasury will raise the maximum size of its buyback operations from $2 billion to at least $4 billion, targeting the 10- to 30-year sectors. The program begins September 9 and runs through early November. The 30-year yield fell roughly 8 to 10 basis points on the news. The dollar index dropped about 0.7% to 0.8%.

The 30-year had been sitting at a 19-year high. The dollar held firm even as the front end of the curve priced softer data and lower September hike odds. That combination kept sellers in control of silver for three straight sessions. The Treasury announcement hit both at the same time and the reversal was immediate.

Tuesday’s selloff took silver below $64. Monday’s gap lower started the week with a break. Wednesday’s recovery erased both moves in a single afternoon. The speed of the turn says the market was overcrowded on the short side heading into an announcement nobody had positioned for.

The Reversal Started at the 50-Day and Has Not Stopped

Silver’s session low at $62.56 came within reach of the 50-day moving average at $61.31 and the 50% level of the all-time high at $60.83. Both held. Aggressive buying turned the market before either level was tested directly.

The $3.50 range from low to high is the kind of move that happens when a market has been leaning too hard in one direction and the catalyst flips. Gold also reversed higher. Both metals had spent the week absorbing pressure from long yields and a firm dollar. When the pressure came off, the buying was not gradual. It was a snap.

The early-session sellers were the afternoon’s buyers. Silver moved through $64, $65 and $66 without finding meaningful resistance until it reached the midpoint pivot at $66.54. The swing top at $66.80 is the next test and it is only $0.75 above the session high.

The Dollar Broke Lower and Gave Silver a Second Catalyst

The dollar index had been sitting near the lower end of its recent range all week without breaking down. Wednesday’s Treasury announcement was enough to push it through. The 0.7% to 0.8% decline gave silver a second tailwind on top of the yield move.

Silver had needed the dollar and yields moving lower together for the entire week. Monday had neither. Tuesday had yields rising while the dollar held. Wednesday finally delivered both at the same time, and the price action showed what happens when the two forces that have been capping this market both step aside in the same session.

FOMC Minutes Land With the Reversal Still Running

The Fed minutes from the July meeting arrive later Wednesday. The vote was 9-3 to hold rates at 3.50% to 3.75%. Hammack, Kashkari and Logan wanted a quarter-point increase. The market has already cut September hike odds on softer payrolls, contained CPI, flat PPI and weak retail sales.

The minutes land into a silver market that just reversed $3.50 off the session low. The yield and dollar relief from the Treasury announcement is still fresh. A hawkish read on the minutes can test that relief before the close.

Daily Spot Silver (XAGUSD) Technical Analysis

Spot Silver is trading higher at the mid-session on Wednesday after reversing earlier weakness. Aggressive buyers came in just ahead of the 50-day moving average at $61.31 and 50% of the all-time high at $60.83. Both levels are major support.

The first key level to watch on the upside is the midpoint at $66.54, between the 50-day moving average at $61.31 and the 200-day moving average at $71.77. The second is the swing top at $66.80.

A sustained move over the latter will indicate the buying is getting stronger and that the rally is not just short-covering. This could trigger an acceleration to the upside, with the 200-day moving average the primary upside target.

What to Watch

The Treasury buyback hit the 10- to 30-year sector and silver responded with the biggest intraday reversal in weeks. The 50-day held on the morning test. The metal is pressing the midpoint pivot at $66.54 with the swing top at $66.80 right above it. FOMC minutes later today are the remaining risk before the close.

The 200-day overhead at $71.77 is where the trade changes if buyers clear the swing top. The 50-day at $61.31 held when it mattered most and that is the floor until the data says otherwise. The long bond cooperated for the first time all week. The minutes decide whether it keeps cooperating into the close.

More Information in our Economic Calendar.