Silver prices are undergoing a short-term decline, influenced by critical economic factors that include a hawkish Federal Reserve, surging Treasury yields, and a stronger U.S. Dollar. These factors play a pivotal role in shaping silver’s demand dynamics and price trajectory.
As of 07:15 GMT, XAG/USD is trading at $22.54, reflecting a decrease of $0.15 or -0.65%.
Federal Reserve’s Prudent Rate Strategy
Chair Jerome Powell’s Federal Reserve is adopting a cautious approach to interest rate cuts, potentially implementing fewer cuts than initially anticipated by the market. Powell’s recent statements hint at a reduction in rate cuts, possibly limited to three this year, contrary to the previous expectation of five. This measured stance diminishes the appeal of non-yielding assets like silver, as investors tend to favor assets with yields in a rising rate environment.
Rising Treasury Yields
Following an unexpectedly robust January Non-Farm Payrolls report, which reported 353,000 new jobs compared to the forecasted 185,000, Treasury yields have experienced an upward spike. The yield on 10-year Treasury notes has surpassed 4%, making yield-bearing assets more attractive when compared to silver.
Impact of a Strong Dollar
The Dollar Index, reaching a peak of 104.18, its highest since December, compounds the challenges faced by silver. A stronger dollar elevates the cost of silver for international buyers, thereby reducing its global demand.
Market Outlook and Forecast
Taking these factors into account, the short-term outlook for silver is bearish. The combined effects of the Federal Reserve’s rate strategy, escalating yields, and dollar strength are anticipated to continue exerting downward pressure on silver prices.
Unless there are substantial changes in these economic conditions or the emergence of bullish catalysts, silver is likely to sustain this downward trend, potentially testing lower support levels in the ensuing months. This bearish trend signals a cautious outlook for silver investors in the near future.
