Silver (XAG/USD) began the week under significant pressure, trading around $63 and marking a decline of approximately 2.40% on the day [1]. The drop is attributed to a stronger US Dollar and elevated US Treasury yields, both of which are negative for non-yielding assets like silver [1]. Market participants are closely watching the upcoming Federal Reserve monetary policy meeting scheduled for September 15-16, with the CME FedWatch Tool indicating an 86% probability of a quarter-point rate hike [1]. This expectation has intensified following recent US inflation data, which showed headline Consumer Price Index (CPI) rising 0.4% month-over-month in August and core CPI increasing by 0.3% [1]. Additionally, rising oil prices amid escalating Middle East tensions are contributing to inflationary pressures and increasing the likelihood of further Fed tightening [1].
From a technical perspective, silver is testing the neckline of a head-and-shoulders pattern near the 50-day Simple Moving Average (SMA) at $62 [1]. A daily close below this level would confirm a bearish formation and could lead to a deeper decline, with potential downside targets at the $60 psychological mark and the $55 support level [1]. Momentum indicators also point to bearish sentiment, with the Relative Strength Index (RSI) at 43 and the MACD below the zero line with red histogram bars [1]. However, if the neckline holds, silver may consolidate and attempt a recovery toward the 100-day SMA at $66, with further upside potential to $70 and $73 if key resistance levels are breached [1].
The market implications are significant, as higher interest rates generally reduce the appeal of silver, which does not offer yield [1]. The combination of macroeconomic factors and technical signals suggests that silver could remain under pressure in the near term unless there is a shift in Fed policy expectations or a reversal in the US Dollar's strength [1].
CONCLUSION
Silver faces strong headwinds from expectations of higher US interest rates and a robust US Dollar, resulting in a sharp price decline and bearish technical outlook. Unless the Federal Reserve signals a change in policy or the Dollar weakens, silver is likely to remain under pressure in the short term.