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Silver Price Forecast: XAG Traders Battle Dollar Strength, CPI Concerns

By:
James Hyerczyk
Published: Aug 8, 2023, 06:45 GMT+00:00

Rising US dollar boosts silver (XAG) costs for global buyers; potentially elevated US CPI data stokes rate hike concerns among investors.

Silver (XAG)

In this article:

Highlights

  • Strong dollar drives silver prices down.
  • U.S. CPI data influences investor expectations.
  • China’s export decline impacts gold, silver consumption.

Overview

Silver (XAG) prices, for a second consecutive day, trended downwards on Tuesday. A strong U.S. dollar, gaining 0.2% against key currencies, played its role by making silver pricier for international purchasers. At 06:20 GMT, Spot silver recorded a minor dip of 0.05%, standing at $23.16 per ounce. Concurrently, U.S. December Silver futures were priced just a cent lower at $23.585.

Sell-Off Wipes Out Recent Gains

The descent in silver prices, wiping away all gains seen post-July 12 U.S. consumer price index (CPI) data, paints a picture of adjusted investor expectations. Many now speculate the possibility of the Federal Reserve taking a milder stance, which might include halting the rate increases in September or even indicating the end of the current rate hike cycle.

Main Focus on US Inflation Data

Yet, the core focus this week will undoubtedly be on the U.S. inflation numbers. While general headline inflation seems to be taking a downward route, any persistent solidity in the metrics could potentially pose challenges for silver and gold. Particularly, a CPI figure on Thursday exceeding forecasts might ignite discussions on further rate hikes in the upcoming September Federal Reserve meeting. Such hikes, lifting bond yields, could make holding zero-yield bullion less attractive, thereby pushing silver prices down.

Fed, China, Lower SPDR Gold Trust Demand Weigh

Moreover, other market dynamics add to silver’s bearish outlook. Comments from Fed Governor Michelle Bowman indicate more rate hikes may be required to meet the U.S. Federal Reserve’s 2% inflation target. Meanwhile, international trade data reveals China, the world’s largest gold consumer, experiencing a 14.5% decline in July exports year-on-year, marking the most significant drop since February 2020, and pressuring silver demand. This, coupled with a 0.3% decline in holdings of the SPDR Gold Trust, signals an overarching bearish sentiment.

Short-Term Outlook:  Bearish Ahead of CPI Report

Given the impending inflation data, Federal Reserve sentiments, and global trade dynamics, silver prices may be poised for a bearish short-term outlook. Investors should closely watch the upcoming U.S. CPI release to gauge potential market reactions.

Technical Analysis

4-Hour Silver (XAG)

The current 4-hour price of Silver (XAG) at $23.15 is slightly below the previous 4-hour close of $23.17, indicating marginal bearish momentum. When compared to the 200-4H moving average ($23.73) and the 50-4H moving average ($23.99), the price is trading beneath both, signaling a prevailing bearish trend. The 14-4H RSI stands at 29.34, which suggests that Silver is in the oversold territory, hinting at potential buying pressure in the near future.

In terms of support and resistance, the current price is hovering closer to the main support range of $22.70 to $22.28, with a major resistance between $25.00 to $25.27. Considering the provided indicators and levels, the current market sentiment for Silver (XAG) appears to be bearish.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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