Silver (XAG) Forecast: Traders Eye Potential Plunge to 200-Day MA Support at $26.62

Bearish Outlook for Silver, with Potential Rebound on Horizon

Silver prices have continued their decline, extending a four-session losing streak that has seen the metal drop by over 10%. Trading below key technical levels, silver has slipped under the short-term pivot at $28.22, which now serves as initial resistance. More critically, the market is trading below the 50-day moving average at $29.13, a level that signals a deeper shift in sentiment. On the downside, the next major support targets are the long-term pivot at $27.22 and the 200-day moving average at $26.62.

At 11:58 GMT, Silver (XAG/USD) is trading flat at $28.50.

Key Factors Driving the Decline

A combination of profit-taking, a stronger U.S. dollar, rising Treasury yields, and disappointing economic data from China have created a bearish environment for silver. Investors have been taking profits after silver’s recent rally, particularly ahead of crucial U.S. labor market data due later this week. This data is expected to provide clearer insight into the Federal Reserve’s next move on interest rates, with lower rates typically being supportive of silver.

However, the strength of the U.S. dollar, which has been hovering near a two-week high of 101.708, has eroded silver’s appeal for foreign investors. If the dollar index breaks convincingly above its pivot at 102.40, silver could face even greater downside pressure.

Weak economic indicators from China, the largest consumer of industrial metals, have also weighed heavily on the market. The latest Chinese manufacturing PMI came in below expectations, signaling slower growth in factory activity, new export orders, and housing prices. This has raised concerns about silver demand, given its industrial applications.

Market Sentiment and Federal Reserve Speculation

The Federal Reserve’s upcoming interest rate decision remains a key focus for traders. Currently, the market is pricing in a 69% chance of a 25-basis-point cut and a 31% probability of a 50-basis-point cut at the Fed’s September meeting. The possibility of a less aggressive rate cut could continue to apply pressure on silver prices, particularly as other asset classes, like equities, remain under pressure.

Recent weakness in the U.S. manufacturing sector, coupled with a broader sell-off in tech stocks, has added further stress to silver prices. The rush to cover margin calls has led to the liquidation of silver positions, particularly as traders seek to secure profits amid steep losses in equities, including the recent sell-off in Nvidia shares.

Potential for a Rebound

While the current outlook for silver remains bearish, a potential rebound cannot be ruled out. If upcoming U.S. labor data, particularly the non-farm payrolls report, surprises to the downside, it could reignite expectations of a more aggressive rate cut by the Fed. Such a shift in monetary policy expectations could trigger a rally in silver, particularly if the dollar weakens in response.

In the near term, however, the combination of a stronger dollar, rising yields, and global economic uncertainties points to further downside for silver. Traders should keep an eye on key technical levels and remain vigilant for any signs of a shift in market sentiment that could open the door for a rebound rally.