Silver (XAG) Forecast: Silver Rally Clears 50-Day MA as Hike Odds Fall

Silver Closes Above Key Resistance as Payrolls Break the Hike Case

Spot silver closed sharply higher Friday after July’s jobs report took apart the strongest argument for a September rate hike. The metal gave back part of an early surge but the close above a key short-term moving average showed buyers stayed with the trade after payrolls, wages and participation all came in softer than expected.

The rally was a rate trade. Traders had been leaning against silver because crude was high, Treasury yields were firm and several Fed officials were still arguing for tighter policy. Friday’s report gave them a reason to reduce those positions.

Nonfarm payrolls fell by 23,000 in July. Economists had expected an 83,000-job gain. Average hourly earnings rose 3.2%, below the 3.5% forecast. The unemployment rate fell to 4.1% from 4.2%, but the decline came with labor-force participation slipping to 61.4% from 61.5%.

That is not a report that gives the hawks what they need for September.

Spot Silver (XAGUSD) settled at $63.56, up $2.03 or 3.29%. The market traded as high as $65.16 after the data and as low as $61.16 earlier in the session.

Payroll Loss Shifted the Burden to the Hawks

The Fed can still point to inflation. Oil, consumer spending and price pressures above target have not gone away. But explaining why you are raising rates after payrolls contracted and wage growth cooled is a different argument than the one the committee was making a week ago. Silver closed above a key technical level anyway, which tells you the market has already made its decision about September.

Treasury yields dropped after the report and the dollar came under pressure. Silver had already started recovering earlier in the week as crude pulled back on Hormuz deal talk. Friday’s data added the missing piece. Oil was lower, the dollar was lower and rate-hike odds were falling at the same time. That combination forced shorts to cover and brought fresh buyers into the market.

Silver Moved Harder Than Gold

Silver’s gain was larger than gold’s because the market is thinner and short covering builds fast when the rate trade turns. The session high near $65 showed how quickly buyers were willing to take out offers once the payroll number hit.

The close near $63.56 was strong but it showed profit-taking after a move of more than $4 from the session low. Sellers could not take back the whole payrolls rally. Buyers held more than 3% into the bell. That leaves silver in a better position than it held at the start of the week.

The market is no longer trading a clean September hike. It is trading a divided Fed with inflation still running and a labor market that just handed the doves their best data point in months.

Crude Oil Is Still the Risk

The jobs report did not end the inflation debate. A breakdown in talks sends crude higher and rebuilds the inflation argument fast. Silver needs crude to stay contained and yields to remain under pressure. The payroll report helped both on Friday. The market needs that to last beyond one session. Fed officials will respond next week and if they push back hard against the market’s repricing, silver faces a test.

Daily Spot Silver (XAGUSD) Technical Analysis

Spot Silver finished sharply higher on Friday after taking out the 50-day moving average at $62.14. The market also closed above the indicator suggesting the presence of strong buyers.

The main trend is up according to two metrics. On Wednesday, the trend changed to up on the swing chart when buyers took out $60.94. It was reaffirmed on Friday when the July 6 main top at $63.28 was taken out. Crossing to the strong side of the 50-day MA also reaffirmed the uptrend.

The new short-term range is $54.78 to $65.16. If the 50-day MA fails as support then look for a possible pullback into the minor retracement zone at $59.97 to $58.75. Short-term traders should note that a trade through $56.56 will change the trend to down.

Long-term traders should pay close attention to the 50-day MA at $62.14, the long-term 50% level at $60.84 and the July 17 main bottom at $54.78. These are the key levels that will influence the longer-term direction.

On the upside, a sustained move over Friday’s high at $65.16 will signal a resumption of the uptrend. If this move creates enough upside momentum then look for the rally to possibly extend into the 200-day moving average at $71.09.

What to Watch

Friday’s close tells traders the market believes the Fed has less room to act next month. The payroll loss was the main event. Cooler wages and a participation drop added to the case. Silver needs crude to stay contained and the dollar to stay on the defensive next week. A rebound in oil or a fresh round of hawkish pushback from Fed officials gives profit-takers from Friday’s close a reason to press the market.

The uptrend is confirmed on the swing chart and the 50-day moving average. The close above $63.28 reaffirmed it. Buyers have the 50-day at $62.14 as the first support and the long-term 50% level at $60.84 underneath that. A sustained move above Friday’s high at $65.16 reopens the path toward the 200-day moving average. A failure to hold the 50-day tells you the rally was short covering, not a trend change.

More Information in our Economic Calendar.