Silver Prices Forecast: Firm for a Fourth Session Ahead of CPI Release

Key Points

• Silver rises as traders anticipate Fed’s rate cut decisions.
• Lunar New Year’s impact on silver’s trading volume noted.
• U.S. CPI report’s outcome crucial for silver’s short-term valuation.

Recent Trends and Future Outlook

The Silver market has shown an impressive upward trend over the past four sessions, bouncing back from the crucial support level of $22.23. This resilience indicates a potential surge towards the intermediate trend mark at $23.23 and even the long-term indicator at $23.36. However, investors remain cautious, refraining from significant moves before the release of the U.S. inflation report, which is expected to shed light on potential Federal Reserve rate adjustments.

At 09:06 GMT, Silver (XAG/USD) is trading $22.87, up $0.18 or +0.78%.

Trading Patterns and Economic Data

Silver trading has demonstrated strength, yet the journey has been gradual, possibly influenced by consistently positive U.S. economic reports. The trading volume has been modest, partly due to the Lunar New Year holidays in major markets like China and Hong Kong. This raises questions about the nature of the buying momentum, whether it’s driven by genuine interest or merely short-covering.

Impact of CPI Report

The focus is now on the forthcoming U.S. Consumer Price Index (CPI) data. A retest of the $22.23 support level is possible post-CPI, with a potential decline opening the path to the next major support at $21.88. Economists anticipate a decrease in the year-on-year CPI to 2.9% for January, from December’s 3.4%. A softer CPI could weaken the U.S. dollar and bond yields, potentially propelling silver prices higher. Markets are currently factoring in four quarter-point rate cuts by the Fed this year, with a 62% likelihood of the first cut in May.

Market Sentiment and Rate Cut Expectations

The robust U.S. labor market and other economic data have prompted traders to revise their expectations regarding early and significant Fed rate cuts. The chances of a March rate cut have significantly reduced. Nonetheless, the consensus is that the Fed will commence rate reductions around mid-year, beneficial for stock markets, assuming no severe economic downturn. However, an unexpectedly high CPI could increase yields and strengthen the dollar, altering market expectations and potentially pushing the first rate cut to June.

Short-Term Market Forecast

In the short term, the silver market appears to be gearing up for a bullish run, contingent on the upcoming economic reports. The CPI and Producer Price Index (PPI) data will be pivotal in shaping market sentiment. The potential for a softer CPI aligns with a bullish outlook for silver, as it could lead to a weaker dollar and lower bond yields, enhancing silver’s attractiveness as an investment. However, traders should remain alert to any hawkish surprises that could shift market expectations and impact silver prices.

Technical Analysis

Silver (XAG/USD) is edging higher for a fourth session on Tuesday, putting it within striking distance of key moving averages that have been controlling its direction for two-months.

The nearest upside target is the 50-day moving average at $23.23. This is followed by the 200-day moving average at $23.36. The resistance zone created by these two moving averages has been containing all gains since the first day of trading in 2024.

We can’t even consider thinking about a substantial rally until the buying is strong enough to overcome this resistance zone with conviction.

Any renewed selling pressure will make $23.23 – $21.88 the next potential downside target.