Tuesday, May 30, 2023

A Stronger US Dollar May Weigh on XAG



  • Silver prices pulled back for a fourth day as the US Dollar strengthened
  • The world’s largest silver ETF saw 21.3 million shares of net outflows in June
  • Traders are eyeing $25.50 for near-term support, breaching which may lead to further losses

Silverprices extended lower during Monday’s APAC session, marking a 4-day loss of 2.2%. A stronger US Dollar appears to be exerting downward pressure on the precious metal and makes it less appealing to holders of other currencies. The DXY US Dollar index hit a fresh 3-month high after June’s FOMC meeting minutes was released.

Without much surprise, the minutes showed that conditions of “substantial further progress” toward the Fed’s full employment and price stability goals have not been met. Therefore the central bank remains “patient” in scaling back its monthly asset purchases. The Fed also views the recent rise in inflation astransitory”, although price levels are rising faster than expected.

Yet, the markets appear to remain jittery about the tapering debate, and the recent rise in commodity prices and improving labor market conditions may prompt Fed members to consider tightening sooner. Asia-Pacific equities traded broadly lower on Thursday, boosting the demand for safe-haven currencies such as the Greenback and the Japanese Yen.

Silver Price vs DXY US Dollar Index – Past 12 Months

Silver Price Forecast: A Stronger US Dollar May Weigh on XAG

Source: Bloomberg, DailyFX

The world’s largest silver ETF – iShares Silver Trust (SLV) – registered 21.8 million shares of net inflow in June. This suggests that ETF investors are reducing their holdings of silver in view of a tightening monetary policy prospect. Silver prices and the number of outstanding SLV shares have exhibited a strong positive correlation in the past (chart below). Therefore, an accelerated pace of redemption may be viewed as a bearish signal for prices.

Silver Price vs. SLV ETF Shares Outstanding – 5 Years

Silver Price Forecast: A Stronger US Dollar May Weigh on XAG

Source: Bloomberg, DailyFX

Silver Price Technical Analysis

Technically, silver prices are consolidating in a tight range between $$25.50 – 26.80 as shown on the chart below. The ascending trendline may provide some near-term support, but a breakdown below it would likely intensify near-term selling pressure and open the door for further losses. The MACD indicator remains below the neutral midpoint, but a bullish crossover suggests that near-term selling pressure may be fading.

SilverPrice – Daily Chart

Silver Price Forecast: A Stronger US Dollar May Weigh on XAG

— Written by Margaret Yang, Strategist for DailyFX.com

To contact Margaret, use the Comments section below or @margaretyjy on Twitter

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