Silver (XAG) Forecast: Rising Yields Cap Silver Rally as 50-Day MA Tested
LONDON (March 5) Silver is edging lower early Thursday as it trades just under the 50-day moving average, suggesting some light selling pressure. Traders should monitor its reaction to this indicator since it could set the tone for the day.
Safe-Haven Story Isn’t Playing Out the Way Some Expected
Some traders are expecting silver to be supported by geopolitical tensions due to safe-haven demand, but I think this week’s price action is reacting more to rising Treasury yields and shifting Federal Reserve expectations. With the conflict in the Middle East between the U.S. and Iran escalating, I’m seeing some negative correlation between crude oil and silver. With oil higher on Thursday, silver is under pressure at this time.
Higher Oil for Longer Is the Biggest Fear
Daily April WTI Crude Oil Futures
Higher oil prices for longer is the biggest fear for silver traders at this time because this is inflationary. The Fed hasn’t been able to cut interest rates this year as the market expected because inflation has been sticky and holding above its 2% mandated level. If oil and gasoline prices remain elevated for weeks or even months, inflation will have nowhere to go but up. This could further delay the Fed’s first rate cut of the year and could even force it to consider raising rates if inflation gets out of control.
According to the CME’s FedWatch tool, there is nearly 0% chance the central bank will cut rates at its March 18 monetary policy meeting. At its June 17 meeting, traders have priced in 65.7% probability that the Fed leaves rates unchanged.
Treasury Yields Tell the Real Story
Treasury yields are also higher early Thursday. The 2-year Treasury Note has risen from 3.365% on Monday to 3.566% on Thursday. How real is the threat of higher inflation? On Tuesday, the yield spiked to 3.599%, its highest level since January 27.
Daily US Government Bonds 10-Year Yield
The benchmark 10-year yield has already exceeded Tuesday’s spike high, hitting 4.129% overnight. This is up from Monday’s low of 3.926%.
What we’re seeing in the Treasury market is not safe-haven buying, but actual anticipation of higher rates and this could be especially bearish for silver if rates continue to rise. During typical safe-haven situations, investors buy Treasury bonds, driving yields lower. We’re not seeing that now and it’s something silver traders should be watching. This is because a lot of the rally since April 2025 has been built on expectations of lower interest rates.
Daily US Dollar Index (DXY)
Furthermore, the rise in yields is also generating support for the dollar, which we all know, makes dollar-denominated silver more expensive for foreign buyers.
Two Scenarios — One Bullish, One Bearish
As I mentioned earlier, technical traders should be eyeing the market’s reaction to the 50-day moving average for guidance. Fundamental traders should be monitoring the situation in the Middle East to see if it’s escalating, the direction of crude oil prices and the odds of a rate cut in June.
Coupled with a breakout above the 50-day MA, lower crude prices, a de-escalation of the war and increasing chances of a June rate cut will be bullish for silver. Meanwhile, a sustained move under the 50-day MA, signs of prolonged military activity and falling odds of a June rate cut will be bearish.
FXEmpire
