Silver (XAG) Forecast: Dollar Strength Stalls the Rate-Relief Rally Ahead of PPI

Silver Pulls Back as the Dollar Refuses to Follow CPI Lower

Spot silver is giving back part of this week’s advance because the one market that needed to confirm the rate-relief trade did not cooperate. CPI came in contained Wednesday. Treasury yields eased. September hike odds dropped below 40%. All of that should have kept silver pressing toward the recent high near $66.50. Instead the dollar firmed to a two-week high near 100.00 and silver is lower Thursday ahead of the Producer Price Index report. The rally stalled right at the midpoint between the 50-day and 200-day moving averages, and the contract is back below that pivot this morning.

At 11:52 GMT, XAUUSD was trading at $64.90, down $0.43 or 0.65%.

Daily Spot Silver (XAGUSD) Technical Analysis

Spot silver (XAUUSD) is edging lower on Thursday after hitting its highest level at $66.80 since June 22 the previous session. The 200-day moving average at $71.43 is the nearest upside target. The nearest downside target is the 50-day moving average at $61.42.

The key pivot price controlling the direction of spot silver is the mid-point of the major moving averages. This pivot is $66.43 today. A sustained move over this level will indicate the presence of buyers. This could lead to a near-term test of the 200-day MA and an intermediate 50% level at $72.08.

A sustained break under this pivot like we are seeing this morning will signal the presence of sellers. This could trigger a retreat into the 50-day MA and 50% of the all-time high at $60.835.

CPI Gave Silver a Bid but the Dollar Took It Back

July consumer prices rose 0.1% from June and 3.4% from a year earlier, easing from 3.5% in June. Core inflation cooled to 2.5% annually. That was enough to push September hike odds from above 50% earlier in the week to near 35-40% after the report. Silver moved higher on the shift because lower rate expectations reduce the cost of holding a metal that pays no interest.

Thursday’s pullback tells you traders already priced that relief in. The dollar near 100.00 is the reason. Yields moved lower but the currency market is not confirming a clean turn in the rate outlook. Silver got the bond market to cooperate. It did not get the dollar, and a firm dollar raises the cost of the metal for buyers using other currencies. The market needs both pieces lined up for a sustained move and right now it only has one.

PPI Lands Thursday and the Dollar Is Waiting for It

The July Producer Price Index report hits at 12:30 GMT. June PPI fell 0.3% on the month, largely because of energy. The number matters for silver because producer costs feed directly into the inflation debate and into the outlook for factory demand at the same time.

Silver reached $66.80 Wednesday and could not hold above the pivot. The PPI number is what determines whether buyers get a second chance at that level or whether the dollar stays firm and the pullback extends. The Fed still has three policymakers who voted for a hike at the last meeting, and the inflation data arriving this week is either going to isolate them or give them company.

Oil Lower on Demand Forecasts Sends Silver a Mixed Signal

WTI near $82 and Brent near $87.70 are both down roughly 1.5% Thursday after OPEC and the IEA lowered demand forecasts. Cheaper crude takes some pressure off headline inflation, which supports the Fed-hold trade silver is riding. The Strait of Hormuz stays restricted, so the decline has limits and inflation uncertainty has not gone away.

The demand side of the oil sell-off is the complication. Weaker crude driven by slowing consumption does not help the industrial side of silver’s trade. The metal is getting both sides of the oil move at once. Lower energy costs help the rate outlook while weaker demand keeps industrial buyers cautious.

What to Watch

PPI at 12:30 GMT is the number that decides whether Wednesday’s CPI relief carries into a second session. Silver is consolidating after a strong run, not breaking down, but the dollar near a two-week high and September hike odds still near 35-40% say the rate trade is not settled yet.

The Fed’s hawks have not gone away and the inflation data landing this week is either reinforcing the case for a hold or rebuilding the case for a hike. Retail sales Friday add a third data point before the market closes for the week.

Silver stalled at the midpoint between the 50-day and 200-day moving averages and is trading below that pivot Thursday morning. The 200-day at $71.43 is the upside target if PPI cooperates and the dollar backs off. The 50-day at $61.42 is where sellers are pointed if the pivot continues to reject the rally.

More Information in our Economic Calendar.