Silver (XAG) Forecast: XAGUSD Drifts Lower Ahead of FOMC Minutes After Payroll Rally Faded

Silver Gives Back Monday’s Gains on Dollar Bid

Spot Silver (XAGUSD) is trading at $60.95 at 18:04 GMT on Tuesday, down $1.10 or 1.76%. The session high hit $62.16 before the dollar took control. The low printed at $60.31.

Monday’s rally off the softer June employment report lasted exactly one session. The dollar firmed through the U.S. afternoon and the silver positions tied to that payrolls trade are getting trimmed. The selling has been steady and orderly since U.S. traders came in, and there is no sign of a bid forming into the close.

Monday’s Payrolls Trade Is Already Unwinding

Silver caught a bid Monday after the June jobs number eased some of the pressure around near-term tightening. Traders moved fast on that data and got rewarded for about 24 hours. The dollar moved higher through Tuesday and the trade reversed just as quickly.

One employment report does not settle the rate question when inflation is still running above where anyone wants it. The payrolls print gave the rate-sensitive trade a reason to buy Monday. By Tuesday the market had already moved past it and started looking at the FOMC minutes as the more important event. The profit-taking is not panicked. It is deliberate. Positions built on the jobs data are getting reduced ahead of Wednesday’s release and no one is fighting the dollar to hold them.

FOMC Minutes Are Running the Clock

Nobody is putting on fresh risk into the June FOMC minutes. Silver traders want to see how the committee talked about the rate path before they commit in either direction. The release drops Wednesday and everything in the silver market today is about clearing the decks before it lands.

The cautious tone is showing up in the flows. Investment-related selling has been selective, not a broad washout. Traders are lightening exposure from last week, not liquidating. Industrial demand is still providing a floor underneath the market and that is keeping the selloff contained. But the buy side is not competing with the sellers right now. Everyone with a view on rates is waiting for the same document.

Geopolitical Risk Is Not Moving Silver Today

Middle East tensions and shipping route disruptions are keeping energy prices elevated. Silver traders are aware of it and they are not trading it. The dollar and the FOMC minutes own this session. Geopolitical risk is adding uncertainty to the broader picture but it has not produced a sustained bid in silver all afternoon.

That could change if the situation around the Strait of Hormuz deteriorates further and the oil price response starts feeding back into inflation expectations. That is not what is happening today. Today is about the dollar and tomorrow is about the minutes.

Daily Spot Silver (XAGUSD) Technical Analysis

Spot Silver is edging lower late in the session on Tuesday, with the price action forming a new minor top at $63.28. The main trend is down according to the longer-term swing chart. The new minor range is $55.60 to $63.28. Its 50% level at $59.44 is the next downside target.

Looking at the bigger picture, the major long-term value zone is $60.84 to $46.48. So, it came as no surprise to me that the early birds came in at $55.60 on May 24 to stop the selling. The question is, now what do they do with it?

Long-term investors, the buy-and-hold type, like this area because it is at or slightly lower than 50% of the all-time high at $121.67, or a bargain, if you’re looking for a retest of that top or even $200 an ounce.

Short-term traders have the most difficult task because they tend to be “hit and run” traders. They tend to work together with the long-term buyer. The latter helps put in the bottom, while the former helps to navigate the short-term barriers in an effort to drive prices higher and away from the support zone.

The first rally off the $55.60 low, reached $63.28. This move was fueled by short-covering. Trader reaction to the 50% to 61.8% retracement of that short-covering rally is what’s going to drive the next major move.

I’m looking for a near-term pullback into $59.44 to $58.53. Trader reaction to this zone will tell me if real buyers are interested in silver at current price levels, or if the market is headed deeper into the low-term value zone.

Remember that long-term buyers aren’t looking for precision. So they can play this game all the way down to $46.48 if they want. They can show support that attracts short-term speculators then turn around a drop prices even lower, buying the very silver that the specs just dumped. So be prepared for some backing-and-filling while the bottom is being formed.

The formation of a support base will be much better for long-term results than just short-covering fueled price spikes. It all starts with whether new money supports the expected pullback into $59.44 to $58.53.

What to Watch

The dollar ran this session and the FOMC minutes on Wednesday are the next event that can change direction. Monday’s payrolls trade got reversed in less than a day. The market is past that data already and waiting for the minutes to tell it something new about where the committee stands on policy. Hawkish language keeps the dollar bid intact and gives silver more room to pull back. Dovish language puts the payrolls trade back on the table and the buyers get a second chance.

The main trend is down and silver pulled back from a minor top. The technicals point to a retracement zone where real buying interest either shows up or doesn’t. Industrial demand is holding the floor but investment flows are defensive, and that balance does not change until Wednesday.

More Information in our Economic Calendar.