Silver Price Forecast: XAG/USD drops towards the 50-DMA due to elevated US yields

• Silver prices drop more than 1.50% in the week and remain below the $20.00 mark.
• US equities finished in the red, as sentiment stays sour ahead of the Fed’s monetary policy decision.
• US housing data was mixed, flashing signs of the Fed’s tightening conditions.

Silver price tumbles for the second consecutive day, though found support at around the 50-day EMA at $19.25, as investors prepare for the Federal Reserve Open Market Committee (FOMC) meeting. Consequently, US Treasury bond yields rose, underpinning the greenback, which remains above the 110.000 thresholds, a headwind for the white metal. At the time of writing, XAG/USD is trading at $19.26, below its opening price by 1.47%.

Wall Street finished with losses due to a dampened market sentiment. High US bond yields and rising geopolitical tensions in the Ukraine-Russia conflict underpinned the greenback. The US Dollar Index, a measure of the buck vs. six currencies, gains 0.52% at 110.159, a headwind for the non-yielding metal.

Market players have priced in a 75 bps rate hike, as shown by the CME FedWatcth Tool. Odds of a ¾ hike lie at 82%, while for a 100 bps, there’s a slim 18% possibility.

Analysts at Citi expect the US central bank to hike 75 bps but added that “more important” will be the dot plot and the Summary of Economic Projections (SEP). They estimate the median dots to “rise to 4.0- 4.25% for 2022 and around 4.5% in 2023. In the press conference, consensus expects Chair Powell to sound similar to his speech at Jackson Hole.”

Furthermore, they expect the Fed to acknowledge a weaker GDP growth and higher unemployment projections for 2023.

Meanwhile, the US economic calendar on Tuesday revealed US housing data, which came mixed. Housing Starts increased by 12.2% MoM reading, above estimates of a 0.3% uptick. Contrarily, Building Permits dropped 10% MoM, below the 4.8% contraction estimated.

“Since the Fed is signaling that it isn’t going to stop raising rates until it tames inflation, the housing market will continue to be weak, with the potential it experiences its own recession,” said Ryan Sweet, a senior economist at Moody’s Analytics in New York. “This isn’t entirely bad news, as the housing market was red-hot.”

What to watch

The US economic docket will feature the US Existing Home Sales on Wednesday, followed by the Fed’s interest rate decision and Jerome Powell’s press conference.

Silver (XAG/USD) Key Technical Levels