Silver Price Forecast: XAG/USD Depreciates as Strong US Dollar and Treasury Yields Weigh Down Market
Silver Price Forecast: XAG/USD Depreciates as Strong US Dollar and Treasury Yields Weigh Down Market
Overview: Decline in Silver Driven by Dollar Strength and Higher Yields
The silver market, represented by the XAG/USD pair, is facing its third consecutive session of losses, trading around $33.50 during Asian market hours on Friday. This drop in silver prices is largely attributed to the recent solid performance of the US Dollar (USD) and an increase in Treasury yields. The stronger dollar, buoyed by supportive economic data, is steering investor preference away from silver, traditionally seen as a safe-haven asset, and toward the USD. Silver, however, may still receive underlying support due to the market’s cautious tone regarding several geopolitical uncertainties.
Factors Impacting Silver Prices
1. US Dollar Strength and Treasury Yield Increases
The robust performance of the US Dollar and heightened Treasury yields are applying downward pressure on silver. A stronger dollar generally makes silver more expensive for international buyers, curbing demand. Additionally, higher yields on US Treasuries tend to detract from the appeal of non-yielding assets like silver.
On Thursday, the USD gained momentum after the release of US labor and economic data. Notably, the job market exhibited resilience as unemployment claims dropped sharply in October, further highlighting the strength of the private sector. This data aligns with an uptick in the S&P PMI, underscoring the steady growth in the US economy.
2. Fed’s Policy Expectations Amid Strong Economic Data
Economic indicators supporting the Fed’s case for a less dovish approach to rate adjustments have fortified the dollar’s position. According to the CME FedWatch Tool, markets currently expect a 97% chance of a 25-basis-point cut in the upcoming November meeting, with no anticipation of a larger, more aggressive 50-basis-point reduction. This outlook provides stability for the dollar but poses challenges for silver, which generally benefits in low-interest-rate environments where the opportunity cost of holding non-yielding assets is reduced.
With the Fed’s policy now leaning towards a slower, cautious rate-cutting approach, the probability of a strong dollar sustaining its gains remains high. Consequently, the pressure on silver prices is likely to persist as the market digests the implications of potential rate cuts on both inflation and safe-haven assets.
3. Geopolitical Tensions and Safe-Haven Demand
While the strong dollar dampens silver’s appeal, market participants are keeping a close eye on geopolitical uncertainties that could spark safe-haven demand for precious metals. The upcoming US presidential election, rising tensions in the Middle East, and complex diplomatic efforts in various global hotspots contribute to this cautious tone.
Geopolitical Developments and Silver’s Potential for Support
1. US Presidential Election Uncertainty
The upcoming US presidential election adds a layer of uncertainty to market sentiment. With Vice President Kamala Harris holding a slight lead over former President Donald Trump in recent polls, uncertainty prevails over future economic and foreign policies that could significantly impact the dollar, Treasury yields, and by extension, silver. Investors often turn to precious metals as a hedge against political instability, and silver may attract renewed interest should election-related tensions heighten as the race progresses.
2. Middle East Geopolitical Concerns
In the Middle East, the conflict involving Israel and Iran has captured the global stage, with traders watching closely for potential escalation. Following a missile attack by Iran on October 1, investors are concerned about potential retaliatory actions that could disrupt oil prices, affect regional stability, and spark a global safe-haven rush towards assets like silver.
Discussions among US and Israeli officials regarding a ceasefire and potential negotiations for hostages in Gaza are underway. US Secretary of State Antony Blinken has stated that the United States is not in favor of a prolonged Israeli campaign in Lebanon, and France has advocated for a swift diplomatic resolution. As these high-stakes talks evolve, the risk of further escalation could potentially drive safe-haven demand in silver as investors seek refuge from market volatility linked to geopolitical instability.
Market Data Insights and Technical Analysis of Silver (XAG/USD)
1. Key Economic Data Influencing Silver Prices
Silver prices remain reactive to US economic data, which have shown resilience and strength in various sectors, contributing to the dollar’s rally. Thursday’s data revealed a drop in US unemployment claims, signaling a resilient labor market, while the S&P PMI confirmed robust private-sector activity. This economic strength supports the Fed’s cautious approach to rate cuts, which, in turn, reinforces dollar strength at silver’s expense.
2. Silver Price Technical Outlook
From a technical perspective, XAG/USD appears to be struggling to find support, with prices testing levels around $33.50. A further decline could test support zones near the $33.00 mark, while a sustained break below this level might expose the precious metal to additional downside pressure.
On the upside, any recovery could face resistance around $34.00, with the 200-day moving average offering additional resistance near $34.20. A clear break above these levels may open the path for gains toward $35.00, although such a move may be contingent on a shift in either dollar strength or a spike in safe-haven demand.
Outlook for Silver (XAG/USD)
The silver market remains in a challenging position amid a strong dollar and high Treasury yields. While solid economic data from the US is bolstering the greenback and reducing the immediate appeal of silver, several underlying factors might provide support. Uncertainties tied to the upcoming US presidential election, ongoing Middle East tensions, and general geopolitical risks add layers of complexity to silver’s outlook.
For traders and investors, keeping an eye on these risk factors could help navigate the silver market’s near-term fluctuations. Should the geopolitical environment deteriorate, or should there be any surprising developments in the Fed’s policy path, safe-haven assets like silver could see a resurgence in demand.
Until then, XAG/USD remains vulnerable to the prevailing economic momentum favoring the USD, with critical support and resistance levels in play as the metal trades around $33.50.
