Silver Price Forecast: Weakening Dollar, Declining Yields Propel Rally

Highlights

• Comex silver hits two-month high on weakening dollar and declining Treasury yields.
• Recent data reflects disinflation phase with minimal growth in producer prices.
• Market adjusts rate-hike expectations, leading to silver price recovery.

Overview

Comex silver prices hit a two-month high on Friday, underpinned by a weakening dollar and declining Treasury yields, as investors anticipated an end to the U.S. Federal Reserve’s rate-hike cycle. The falling dollar index, reaching its lowest level in over a year, making silver more affordable for international buyers. Moreover, with benchmark U.S. Treasury yields dropping, the opportunity cost of holding non-yielding silver decreased.

Economic Indicators Show Disinflation and Tight Labor Market

In the economic landscape, recent data indicated a disinflation phase, with U.S. producer prices experiencing minimal growth in June. Conversely, the number of Americans filing for unemployment benefits unexpectedly declined, suggesting a tight labor market. Wednesday’s data also revealed modest growth in U.S. consumer prices for June, marking the smallest annual increase in over two years.

Traders Lower Chances of Second Rate Hike

As a result of recalibrated expectations, the market has revised its outlook for a second rate hike. Correspondingly, the silver price rebounded. Although interest rate futures still indicated expectations of a rate hike from the Federal Open Market Committee (FOMC) later this month, the prospects for further increases have diminished.

2-Year Yield Dips on Slower Inflation Print

The lower-than-expected June inflation print contributed to declining U.S. Treasury yields, reducing the likelihood of more aggressive interest rate hikes by the Federal Reserve. Week to date, the 2-year yield saw a decrease of approximately 27 basis points, showcasing the inverse relationship between yields and prices.

Notably, the June producer price index came in weaker than anticipated, rising only 0.1% compared to economists’ forecast of a 0.2% increase. Similarly, the core producer price index, which excludes food and energy prices, fell below expectations at 0.1%.

Wednesday’s consumer price index data further confirmed the trend, with June’s annualized rate at 3%, the lowest since March 2021 and below consensus expectations.

Short-Term Outlook:  Lower Yields, Dollar Set the Tone

While Federal Reserve officials stress the ongoing battle against inflation, the evidence of inflationary pressures receding provided a positive signal for silver traders, leading to a global market rally. As the precious metal becomes increasingly attractive amidst a shifting economic landscape, investors are eyeing potential opportunities in the silver market.

In conclusion, Comex silver prices surged to a two-month high, supported by a weakening dollar and declining Treasury yields. Recent economic data showcased a disinflation phase, with minimal growth in producer prices and modest consumer price increases. The market adjusted its expectations for future rate hikes, leading to a recovery in the silver price. Despite the Federal Reserve’s continued focus on inflation, the retreat of inflationary pressures was welcomed by silver traders, stimulating a market rally worldwide.

Technical Analysis

Comex Silver market sentiment is currently bullish based on the analysis of several technical indicators. The 4-hour price is higher than the previous close, indicating upward momentum. The price is also above both the 200-4H and 50-4H moving averages, suggesting strength in the market and a potential uptrend. The 14-4H RSI is relatively high, indicating overbought conditions and the possibility of a short-term correction.

The market is currently nearing the main resistance area, which may lead to a consolidation or reversal. Overall, while the market is bullish, traders should monitor for potential reversals and breakout opportunities.