Silver (XAG) Forecast: Silver Slides as Rising Yields Weigh on the Market

Silver Drops 2.68% as Rising Yields and Rate Outlook Shift Pressure the Metal

Spot Silver (XAGUSD) is trading at $73.90 at 12:25 GMT, down $2.03 or 2.68%. This isn’t just silver following gold lower. The move is being driven by rising U.S. Treasury yields and what they’re signaling about Federal Reserve policy and economic growth.

Technical Outlook

Technically, XAGUSD is in a downtrend according to the daily swing chart, but momentum is trending higher based on the minor swing chart. The key moving averages cast a similar outlook with the longer-term uptrend supported by the 200-day moving average at $60.02 and the shorter-term downtrend capped by the 50-day moving average at $79.02.

My focus for the past two weeks has been on the longer-term 61.8% retracement level at $74.63. Trader reaction to this level will set the tone this week.

Currently the market is trading on the weak side of $74.63, signaling the presence of sellers. If this move creates enough near-term downside momentum, prices could plunge into the minor retracement zone at $69.32 to $67.36.

Overtaking $74.63 with conviction will indicate that buyers have returned. If the move is strong enough, look for them to make a run at the 50-day moving average. This could trigger a surge into a major 50% level at $83.61.

Yields Are Running This Market

Higher U.S. Treasury yields are pulling money out of silver and into bonds. That’s the direct mechanism. Non-yielding assets lose their appeal when yields are offering better returns and silver is feeling that competition right now. The stronger U.S. Dollar Index is adding to the pressure. A firmer dollar makes silver more expensive for foreign buyers and that cuts into demand.

Fed Staying Higher for Longer Is the Real Problem

The tone changed when energy prices started pushing inflation risk back up. Traders are reducing rate cut expectations for this year and that higher-for-longer outlook is keeping yields elevated and tightening conditions across the board. Higher borrowing costs slow business investment and consumer spending and silver feels that on both sides of its identity. It’s a precious metal and an industrial one. When growth expectations weaken, industrial demand concerns pile on top of the rate headwind.

Short-Term Outlook

The path of least resistance is lower as long as yields stay elevated and the Fed stays cautious. A drop in yields or clear evidence that inflation is cooling changes the picture. Until then rallies are going to find sellers.

More Information in our Economic Calendar.