Silver Prices Forecast: Bearish Trend Amid Inflation Spike, Fed Policy Shift

Key Points

• Unexpected CPI rise shifts Federal Reserve rate cut timeline.
• Surging Treasury yields reduce silver’s investment appeal.
• Strong dollar after CPI report pressures global silver demand.

Silver Prices Under Pressure

Silver are drifting lower on Wednesday after a significant sell-off the previous session, influenced heavily by the latest U.S. inflation data and its impact on Federal Reserve policies. The stronger-than-expected Consumer Price Index (CPI) report has shifted market expectations regarding future rate cuts, exerting downward pressure on silver prices.

At 09:02 GMT, XAG/USD is trading $22.01, down $0.11 or -0.48%.

CPI Report Impact

The CPI rose 3.1% annually, surpassing expectations of a 2.9% increase. This unexpected rise in inflation has caused a shift in the timing and extent of anticipated Federal Reserve rate cuts. Key contributing factors to this inflation include increased costs in shelter and healthcare. The likelihood of a rate cut in May has now dipped below 50%, with expectations leaning towards a potential cut in June.

Treasury Yields and Silver

The yield on the 10-year Treasury note surged to 4.32% following the inflation data, reflecting a broader market reaction. Higher yields indicate a decrease in the attractiveness of non-yielding assets like silver. There is also speculation that yields could climb above 5.00% in 2024, further diminishing the appeal of silver.

US Dollar Strength

The U.S. dollar index reached a three-month high post-inflation data, adversely affecting silver prices for holders of other currencies. A stronger dollar typically results in weaker silver prices, as it becomes more expensive for investors holding other currencies.

Key Support for Silver

Silver’s next significant support level is identified at $21.88. A drop to this level could trigger further algorithmic selling, as indicated by recent Commodity Trade Advisor (CTA) liquidations in the silver market.

Outlook

The market’s focus now shifts to upcoming U.S. retail sales data and producer price index numbers. Federal Reserve officials’ upcoming speeches, including Chairman Jerome Powell’s, are also highly anticipated for insights into future rate decisions.

Given the current economic indicators, the forecast for silver remains bearish. Persistent inflation and a strong dollar, coupled with higher Treasury yields, suggest a challenging environment for silver prices in the short term.

Technical Analysis

With XAG/USD trading on the weakside of both the 50-day moving average at $23.16 and the 200-day moving average at $23.33, the intermediate and long-term trends are clearly lower.

Shorter-term, further weakness is starting to emerge with the market on the bearside of the pivot at $22.23. Given a potential plunge to $20.66, short-sellers are likely to go after the November support at $21.88 since this is the trigger point for the next acceleration to the downside.