Silver forecast: XAG/USD reaches new high, but positioning becomes overstretched

Silver has pushed higher over the past week, supported by a combination of falling U.S. yields, a softer dollar and rising conviction that the Federal Reserve is moving closer to a rate cut next week. That shift has revived interest across the precious-metals complex, but silver has outperformed thanks to its higher beta to easing financial conditions. At the same time, positioning has turned more constructive as investors add exposure to metals with strong momentum ahead of key risk events.

The rally is also getting a lift from firm industrial demand indicators, with solar and electronics orders remaining resilient and exchange inventories still relatively tight. This has created a short-term squeeze dynamic: with physical supply not keeping pace, even modest speculative inflows have had an outsized impact on prices. The key watchpoints for the coming days will be U.S. inflation data, central-bank communication and any shifts in yields, all of which could either extend silver’s breakout or trigger a quick bout of profit-taking after a strong run.

Silver (XAG/USD) daily chart
 
Past performance is not a reliable indicator of future results.

Technical picture suggests speculative positioning

On the chart, last week’s rally caused XAG/USD to re-enter into overbought territory in the RSI, which is likely attracting some interest from sellers. The bias remains constructive with the path of least resistance pointing higher. However, the continuation of the rally is likely to come with bouts of selling as some participants ease out of the positions, so a further reversal below $55 cannot be discarded. The setup is also looking very speculative with exponential gains over the past few days so a deeper reversal could eventually be triggered.

FOMC meeting in focus

The main risk event before the meeting is Friday’s delayed September PCE report, which could easily upset the market if inflation prints firmer than expected. A surprise on the upside - especially a core print with a 3-handle - would likely force a quick unwind of rate-cut bets and trigger a USD rebound, weighing on sentiment and likely pushing silver lower. Conversely, a soft PCE number followed by cautious Fed communication next week could reinforce downward pressure on the dollar, allowing risk appetite to get another boost. Because of this, the setup heading into the FOMC is one where silver’s next move is highly data-dependent, with volatility the most likely outcome