The silver price (XAG/USD) edged lower on Friday, trading around $38.10 per troy ounce during the Asian session. This movement followed a day of gains, but market sentiment turned cautious ahead of a pivotal event: Federal Reserve Chair Jerome Powell’s speech at the Jackson Hole Symposium in Wyoming. 

Powell’s remarks are widely expected to offer crucial insights into the central bank’s September policy outlook, particularly concerning the trajectory of interest rate cuts. Dejan Novkovic, broker at ProDivia Group, shares a thorough breakdown of this topic.

Silver Price Weakness Amid Fed Uncertainty

Silver, often regarded as a non-yielding asset, tends to move inversely with U.S. interest rate expectations. Higher rates increase the opportunity cost of holding precious metals, while expectations of easing policy typically provide support.

Currently, the CME FedWatch Tool indicates that markets are pricing in a 74% probability of a September rate cut, compared with 82% earlier in the week. This softening in expectations has applied downward pressure on XAG/USD, as traders reassess the Fed’s balancing act between persistent inflation risks and growing signs of labor market softness.

The narrowing probability of imminent easing has encouraged some profit-taking in silver after its recent rebound. With investors awaiting Powell’s remarks, the market remains finely balanced between inflation concerns and economic slowdown signals.

Strong PMI Data Complicates Fed Outlook

Adding to the pressure on silver were fresh economic data releases pointing to resilience in certain segments of the U.S. economy.

• The S&P Global U.S. Composite PMI (Purchasing Managers’ Index) climbed modestly to 55.4 in August from 55.1 previously, reinforcing optimism about overall economic activity.
• The Manufacturing PMI surged to 53.3, its highest level since early 2022, compared with 49.8 previously and well above consensus expectations of 49.5.
• Meanwhile, the Services PMI eased slightly to 55.4 from 55.7, but still outperformed forecasts of 54.2.

These figures suggest a robust expansion in business activity, particularly in the manufacturing sector. For the Federal Reserve, stronger data complicates the policy outlook. On one hand, inflation remains above target, and resilient activity could keep price pressures elevated. On the other hand, the Fed is aware of mounting risks to the labor market.

Jobless Claims and Labor Market Signals

The latest U.S. Initial Jobless Claims data added another dimension to the Fed’s dilemma. Claims rose to 235,000 last week, an eight-week high, surpassing the consensus forecast of 225,000. This uptick may indicate emerging cracks in the labor market, supporting arguments for policy easing.

However, the claims figure, while elevated, is not yet at levels consistent with a significant slowdown. For silver traders, this mix of signals underscores the uncertainty that surrounds the Fed’s path. Persistent inflationary pressures combined with softer employment data create an environment where Fed officials must tread carefully.

Technical Outlook: XAG/USD Near Support Levels

From a technical perspective, XAG/USD faces pressure as it trades just above the $38.00 psychological support level. A sustained break below this threshold could expose the metal to further declines toward $37.60 and then $37.20, areas that coincide with short-term moving averages and previous consolidation zones.

On the upside, immediate resistance lies near $38.50, followed by the weekly high around $39.00. A decisive move above $39.00 could reopen the path toward $40.00, a key psychological and technical barrier.

Momentum indicators suggest consolidation, with the Relative Strength Index (RSI) hovering near neutral territory. Traders appear reluctant to commit to aggressive positions ahead of Powell’s speech, suggesting that volatility could increase significantly once policy clues emerge.

Broader Market Dynamics

Beyond Fed policy, silver remains influenced by broader macroeconomic dynamics and its role as both an industrial commodity and a safe-haven asset.

• On the industrial side, resilient global manufacturing activity could underpin demand, particularly given silver’s use in electronics, solar panels, and clean energy technologies.
• On the safe-haven side, persistent geopolitical risks and inflationary concerns could attract investor flows if the economic outlook darkens.

This dual role means silver often experiences more volatility than gold, with XAG/USD highly sensitive to swings in both risk sentiment and monetary policy expectations.

Conclusion

The silver price forecast remains closely tied to evolving expectations around the Federal Reserve’s September meeting. While stronger PMI readings suggest resilience in the U.S. economy, rising jobless claims highlight cracks in the labor market. 

With the CME FedWatch Tool now pricing in a 74% chance of a September rate cut, down from 82% earlier, silver has slipped toward $38.00 per ounce as traders adjust positions.

All eyes are now on Fed Chair Powell’s Jackson Hole speech, which could tilt market expectations decisively. Until then, XAG/USD is likely to trade cautiously within established ranges, awaiting fresh policy signals.