Silver Prices Forecast: Traders Eye Inflation Data for XAG/USD Direction

Silver prices are inching lower on Tuesday, following a surprising rally in the previous session. The earlier spike caught traders off guard, especially on a low-volume trading day due to holidays in the U.S. and U.K. The rally brought silver close to an eleven-year high of $32.52, a critical level that could prompt further gains. A new support level has been established at $30.04, with a break below this point potentially indicating a short-term downtrend.

At 10:47 GMT, XAG/USD is trading $31.58, down $0.06 or -0.20%.

Key Drivers and Market Sentiment

Silver’s recent movements have been influenced by industrial demand and the same macroeconomic factors impacting gold prices. Investors are closely watching U.S. inflation data, seeking clues about potential Federal Reserve interest rate cuts. The strong dollar, bolstered by a potential shift in U.S. monetary policy towards rate hikes, poses a significant risk of further corrective moves in silver.

Inflation Data and Federal Reserve Policy

The core Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred inflation measure, is due on Friday. Expectations for the PCE data suggest a modest improvement from the first quarter, with a core inflation rate projected at 0.2%, down from 0.3% in March. Consumer spending is expected to moderate, which may point to a cooling of inflationary pressures.

Fed minutes from the recent policy meeting revealed a cautious stance, with officials contemplating further rate hikes if inflation remains high. The minutes highlighted concerns about whether the current rate levels are sufficiently restrictive to curb inflation. While some officials are open to rate cuts, this is seen as a possibility later in the year, contingent on economic developments.

Market Forecast

In the short term, the outlook for spot silver remains slightly bullish. Despite the potential for a strong dollar to exert downward pressure, industrial demand and the broader economic context support a positive bias. However, the release of key U.S. inflation data and subsequent Federal Reserve actions will be crucial in determining the next direction for silver prices. Traders should prepare for possible volatility as market sentiment shifts based on these economic indicators.

Technical Analysis

Monday’s strong rally has put silver in a position to challenge the 11-year high at $32.52, reached on May 20. This level is a potential triggerpoint for an acceleration to the upside since the next major target is $34.35.

The new short-term bottom is $30.04. This is a potential trigger point for an acceleration to the downside with the next major target the 50-day moving average at $27.76. This indicator is controlling the intermediate trend.