Market Overview
Despite a strong US dollar and hawkish Federal Reserve remarks, Silver (XAG/USD) has gained traction, trading around $28.38 and hitting an intraday high of $28.50. This upward movement is largely driven by risk-off sentiment due to escalating geopolitical tensions in the Middle East.
Additionally, declining consumer sentiment and rising inflation expectations have bolstered safe-haven demand, supporting silver prices. However, the US dollar’s strength, bolstered by the Fed’s stance on maintaining higher rates due to persistent inflation, may limit further gains in silver.
Fed Caution and Weak Consumer Sentiment Support Silver Amid Dollar Strength
The US dollar maintained its upward trend, driven by hawkish remarks from Federal Reserve (Fed) officials who emphasized the need to keep interest rates higher amid elevated inflation. Fed Vice Chair Philip Jefferson echoed this sentiment, advocating for maintaining current rates until inflation eases more noticeably.
Investors are closely watching the Producer Price Index (PPI) report, which could influence market sentiment. A survey by the Federal Reserve Bank of New York showed that US consumers expect inflation to accelerate over the next year, with expectations reaching 3.3%.
Neel Kashkari, President of the Minneapolis Federal Reserve, expressed caution about tightening monetary policy, while San Francisco Fed President Mary Daly stressed the importance of maintaining a restrictive policy to achieve the Fed’s inflation goals.
On the data front, the University of Michigan Consumer Sentiment Index dropped to 67.4 in May from 77.2 in April, hitting a six-month low and missing the expected 76 reading. Meanwhile, the UoM 5-year Consumer Inflation Expectation rose to 3.1%, a six-month high, up from 3.0%.
Looking ahead, the US PPI for April is anticipated to rise by 2.2% year-over-year (YoY), with the Core PPI expected to increase by 2.4% YoY. Additionally, US Consumer Price Index (CPI) inflation is forecasted to ease to 3.4% YoY in April from 3.5%, while Core CPI inflation is projected to drop to 3.6% YoY from 3.8% in March.
Geopolitical Escalation Spurs Safe-Haven Demand for Silver
On the geopolitical front, Israeli soldiers moved into Gaza’s northern area to reclaim territory from Hamas militants on Monday while also pushing into Rafah with tanks and troops, causing Palestinian residents to flee, according to the latest news.
Hence, the escalation of conflict between Israeli soldiers and Hamas militants, along with the displacement of Palestinian residents, increased geopolitical tensions, boosting demand for safe-haven assets like silver.
Silver (XAG/USD) Price Forecast
Silver (XAG/USD) is trading at $28.38, up 0.95%. The 4-hour chart highlights key price levels, with the pivot point at $28.35. Immediate resistance stands at $28.79, followed by $29.24 and $29.64. Immediate support is at $27.96, with further support at $27.53 and $27.10.
The 50-day EMA is at $27.72, while the 200-day EMA is at $26.98. The upward channel on the 4-hour timeframe supports the likelihood of a bullish trend above $28.35. Both the 50 and 200 EMAs indicate a buying trend. The outlook remains bullish above $28.35; however, a break below this level could lead to significant selling pressure.
