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Silver Price Rallies on Weakening USD and Anticipation of FOMC Minutes

In recent trading sessions, the price of silver, denoted by XAG/USD, has been on the rise for four consecutive days. This surge can be attributed to a weakened US Dollar (USD) and market expectations surrounding the release of the Federal Reserve’s (Fed) minutes from their last meeting. The upward momentum in silver prices is further fueled by concerns over the sluggish US economy and escalating trade tensions between China and the US. As investors eagerly await key labor market data and the Nonfarm Payrolls report, the outcome of these indicators could significantly influence future decisions made by the Fed.

The silver market has experienced a positive trend as the US Dollar showed signs of weakness prior to the unveiling of the Fed’s meeting minutes. The XAG/USD pair is currently trading above the $23.00 mark, recovering from a daily low of $22.77.

Factors contributing to the rally in silver prices include disappointing economic data from the US, particularly the May Factory Orders, which remained unchanged at 0.3% compared to the previous month’s figures, falling short of the projected 0.8% increase. Excluding transports, orders experienced a decline of -0.5%, a marginal improvement from the previous month’s downward revised metric of -0.6%. These indicators suggest a slowdown in the US economy, which has been further confirmed by the recessionary territory reading of 46.0 for June’s ISM Manufacturing PMI, lower than April’s 46.9.

Despite relatively stable US Treasury bond yields, US real yields, calculated by subtracting inflation from the nominal yield, are currently at 1.630%. This has limited the extent of the XAG/USD rally.

In terms of monetary policy, futures traders anticipate the Fed raising rates only once, contradicting the statements made by Fed Chair Powell in his recent public appearances. The CME FedWatch Tool currently reflects an 88.7% probability of a 25 basis points rate hike in July, suggesting that market participants do not expect the Fed’s projected two rate increases.

Adding to the dynamics influencing silver prices, tensions between China and the US may further enhance the appeal of precious metals. Disputes surrounding IT, technology, and raw material exports from China to the US, primarily related to chip production, could lead to sour sentiment and bolster the demand for precious metals. It is worth noting that US Treasury Secretary Janet Yellen is scheduled to travel to China for meetings with Chinese officials, which could impact market sentiment.

Upcoming events in the US, such as the release of labor market data and the ISM Services PMI, will be closely watched. However, the ultimate determinant of the Fed’s future actions could lie in the outcome of the US Nonfarm Payrolls report, which will be released on Friday.

Technical Outlook:
From a technical perspective, the XAG/USD pair has shown signs of recovery. However, it has yet to surpass significant resistance levels that, once breached, could pave the way for further upward movement. The initial obstacle is the 20-day Exponential Moving Average (EMA) at $23.10, followed by the intersection of a downward sloping resistance trendline and the 50-day EMA around $23.46. A successful breakout above these levels could expose the June 16 daily high of $24.20. On the other hand, a drop below $23.00 would maintain a bearish sentiment and potentially lead to a decline towards the June 23 swing low of $22.11.

Decision: HOLD