Silver (XAG) Forecast: Is All the Bad News Priced In as XAG Eyes a Rebound?

Spot Silver Holds After the Worst Headlines Hit

Spot Silver (XAGUSD) traded at $63.61 at 13:20 GMT Thursday, up $0.18, gaining 0.28%. Silver plunged earlier this week ahead of the Consumer Price Index and Producer Price Index reports. Traders positioned for bad numbers before they arrived.

The Consumer Price Index confirmed inflation above 4% on Wednesday. The Producer Price Index came in hot Thursday. The European Central Bank hiked rates the same day. Every bearish catalyst landed this week.

Silver held and edged higher on the day the worst number dropped. When the data confirms what the selling already priced in and the market does not break, the short side is exhausted. That is what Thursday’s price action is saying.

The PPI Was Hot but the Details Tell a Different Story

The Producer Price Index rose 1.1% in May, well above the 0.7% the Street expected. Annual wholesale inflation hit 6.5%, highest since November 2022. The headline is ugly. The breakdown is less alarming.

Nearly 80% of the monthly increase came from a 2.8% surge in final demand goods prices, with energy doing most of the work. Wholesale gasoline prices jumped 23.4%. Overall energy costs climbed 10.7% for the month. The Iran conflict is feeding directly into these numbers the same way it fed into Wednesday’s Consumer Price Index.

Core Producer Price Index, stripping out food and energy, rose 0.4%. Below the 0.5% expectation. That is the number that matters for silver because it tells you whether inflation is spreading beyond the energy shock or staying contained. Right now it is staying contained. The headline screams inflation. The core says most of the damage is crude oil and gasoline, not broad-based demand pressure.

CPI Already Confirmed the Fed Is Not Moving

Wednesday’s Consumer Price Index showed annual inflation at 4.2%, highest in roughly three years. Monthly core prices rose just 0.2% with the annual core rate at 2.9%. The Fed is not cutting into that. Markets are overwhelmingly expecting no change at next week’s FOMC meeting. Reuters polling shows most economists expect the Fed to hold through the rest of the year.

Rate cut expectations have been wiped out. Traders are pricing in a possible hike later this year instead. Under normal conditions that combination, elevated inflation with rates staying higher for longer, would be crushing silver. The metal pays no yield. When Treasury rates climb, every alternative that generates income looks more attractive by comparison.

Silver sold off all week into that data. When the data confirmed the fears, the metal stopped going down. That is the market telling you the rate story was already in the price before the numbers hit.

The ECB Hiked and Silver Still Did Not Break

The European Central Bank raised rates 25 basis points Thursday, lifting the deposit rate to 2.25%. First hike since 2023. European policymakers are worried that energy-driven inflation bleeds into broader price pressures. Markets are already pricing in additional tightening later this year.

Two major central banks tightening at the same time should be bearish for silver. It should support global bond yields and strengthen currencies against the metal. On paper that is exactly the wrong environment for a non-yielding asset. The Fed is hawkish. The ECB just hiked. The PPI came in hot. Silver is green on the day. The selling that was supposed to come on these headlines already happened earlier this week.

Daily Spot Silver (XAGUSD) Technical Analysis

Spot Silver (XAGUSD) is inching lower on Thursday with the early price action suggesting investors are trying to form a short-term bottom.

Both the main and minor trends are down according to various metrics including the minor and main trend indicators, and the 50- and 200-day moving averages. But our main concern is not about the trend at this time, that’s pretty obvious. We’re more concerned about where the support is and whether the onslaught will continue.

Let’s look at the upside first and resistance. The first resistance is the 200-day moving average at $68.14. Overcome this and we could see a short-covering rally into a resistance cluster formed by a long-term retracement level at $74.63 and the 50-day moving average at $75.56.

The nearest downside target is the March 23 bottom at $61.00. I don’t think this price was the primary objective at the time. I think traders were gunning for $60.83, or 50% of the all-time high at $121.67.

$59.34 comes into play as potential support because it was the breakout level on December 5 that launched the start of the vertical move in December and January. Under this level, we have to go way back to the October 28 main bottom at $45.55 before we find true main bottom support.

Don’t try to pick a bottom during a freefall, but only if you have a “lean” or natural exit to the left like $61.00. As always during a prolonged move down in terms of price and time, the best bottoming pattern will be a dramatic closing price reversal bottom in my opinion.

What to Watch

Silver sold off all week into the CPI and PPI releases. Both reports confirmed that inflation is running hot on the headline, but the energy shock from the Iran conflict is responsible for most of the damage. Core readings came in below expectations on both reports. The Fed is not cutting. The ECB just hiked. Both developments were priced into silver before they happened. The fact that the metal is green on the day the PPI and the ECB rate hike landed tells you the sellers ran out of ammunition.

My read on this is the 200-day moving average at $68.14 is the first real test on any bounce. A short-covering rally could carry silver into the resistance cluster at $74.63 to $75.56, but only if real buyers start taking out offers instead of just bidding.

On the downside, $61.00 and the 50% retracement at $60.83 are the levels that matter. Below $59.34 the picture gets ugly fast with the next real support at $45.55. The selling happened before the data.

The data landed and silver held. That is how bottoms start to form. Whether this one holds depends on next week’s FOMC meeting and whether the Fed signals something even more aggressive than what the market already expects.

More Information in our Economic Calendar.