Silver Prices Forecast: Fed’s Stance on Interest Rates Boosts XAG/USD

Inflation Trends and Silver Rally

Silver prices are rallying on Monday, following U.S. inflation data indicating a potential slowdown. This development stirred expectations of a Federal Reserve rate cut as early as June. The current upmove in silver is partly attributed to the reduced opportunity cost of holding bullion against lower interest rates. However, it’s important to note that today’s trading is taking place in a low liquidity environment due to the closure of many European and APAC markets for Easter Monday. This raises the possibility of a reversal in these trends later in the week.

At 11:01 GMT, XAG/USD is trading $25.08, up $0.12 or +0.47%.

Federal Reserve and Interest Rate Speculations

Recent U.S. inflation data has been slightly lower than anticipated, supporting a mid-year rate cut by the Fed. Fed Chair Jerome Powell acknowledged the moderation in February’s inflation, aligning with the desired trajectory. The anticipation of rate cuts, combined with safe-haven demand and central bank purchases of gold amid geopolitical tensions, has propelled silver up by over 3% this year. The key Fed inflation gauge for February rose by 2.8% year-on-year, a factor likely to influence the Fed’s decision-making in the near term.

Interest Rates and Silver Trends

Silver prices have historically exhibited an inverse relationship with interest rates. As interest rates drop, silver becomes more attractive compared to fixed-income assets like bonds, especially in a low-interest-rate scenario. Additionally, overseas demand has also contributed to the bullion’s recent surge. Current market reactions are primarily driven by the February personal consumption expenditures (PCE) reading – the Fed’s preferred inflation gauge.

Future Outlook

Looking ahead, market sentiments suggest that there’s a significant probability of a Fed rate cut in June. Nevertheless, recent remarks from Fed Governor Christopher Waller hint at a potential delay in cutting policy rates, emphasizing the need for a sustainable inflation trajectory. While the markets anticipate possible rate adjustments, forthcoming economic reports, such as the ISM manufacturing data and the jobs report for March, will be crucial in shaping the short-term outlook for silver.

Short-Term Market Forecast

Considering the current economic indicators and market reactions, the short-term forecast for silver remains cautiously bullish. The potential for a rate cut by the Federal Reserve, coupled with ongoing geopolitical tensions and safe-haven demand, provides a supportive environment for silver prices. However, upcoming economic data and the reopening of global markets post-Easter will be key factors in determining the sustainability of this bullish trend.

Technical Analysis

Silver (XAG/USD) is trending higher for a third session on Monday with speculators setting their sights on the March 21 main top at $25.78. This is followed by the December 4 top at $25.91.

On the downside, the key support is $24.33. Taking out this level will change the short-term trend to down with the 50-day moving average at $23.49 the next target. Longer-term support is $23.37.