Silver (XAG) Forecast: Oil Above $100 Tests Fed Cut Bets Ahead of PPI

Silver Posts 4% Weekly Gain as Rate Cut Expectations Drive the Bid

Spot Silver (XAGUSD) closed the last week at $75.93, up $2.93 or 4.02%. The move was about one thing. Rate cut expectations shifted and silver moved with them.

Ceasefire and Falling Oil Opened the Door

Early in the week the U.S.-Iran ceasefire knocked oil lower and Treasury yields followed. The U.S. Dollar Index softened at the same time. That combination is exactly what silver needs. Lower yields reduce the opportunity cost of holding a non-interest bearing metal and a weaker dollar brings in foreign buyers. When oil briefly dropped below $100 traders started pricing in the possibility that inflation pressure could ease and that gave the Fed more room to cut rates later in the year. Silver caught a bid on all of it.

Fed Minutes Put the Brakes On

Midweek the tone shifted. The Federal Reserve meeting minutes showed some officials are still open to raising rates if inflation stays elevated. That’s not what silver bulls wanted to read. Higher rates hurt silver and the warning about rising energy costs slowing growth while keeping inflation high made the picture even more complicated. Stagflation talk is never good for risk assets and silver felt that hesitation through the middle of the week.

CPI Kept the Inflation Story Alive

Friday’s March CPI was ugly on the energy side. Gasoline was up more than 20% for the month and fuel oil went even higher. I’ve been saying all week that the war was going to show up in the March data and there it was. The number didn’t change anything for the Fed and it didn’t change anything for silver either. The metal held its gains right through the print and closed the week near the highs. When a market absorbs bad news and doesn’t sell off, that’s telling you something about who’s in control.

What’s Changed Going Into the Week of April 17

The setup at the start of the new week is less favorable. Silver is trading near $74.28, WTI crude has moved back above $100 to around $104.65 and the U.S. Dollar Index is stronger. Both oil and the dollar are working against silver right now. Tuesday’s Producer Price Index report is the next inflation read to watch. Several Federal Reserve officials are also scheduled to speak and any hawkish signals will put more pressure on silver.

Weekly Forecast

The weekly gain was real but the tailwind that drove it is fading. Oil back above $100 keeps inflation risk elevated and reduces the case for near term rate cuts. A firm dollar adds to the headwind. My forecast for the week ending April 17 is sideways to slightly lower unless the PPI comes in soft or the Fed speakers strike a more dovish tone than expected. The charts are showing early signs of a momentum shift but the fundamental headwinds from oil and the dollar need to ease before that technical setup can follow through. Watch the $74.63 level. That’s where this market finds out whether buyers are still committed.

Technical Outlook

Technically, Spot Silver (XAGUSD) is in a downtrend according to the weekly swing chart. However, the three-week rally suggests momentum may be shifting to the upside after forming the closing price reversal bottom at $61.01 the week-ending March 26.

The short-term range is $96.43 to $61.01. The first target is its 50% level at $78.72. The intermediate-term range is $121.67 to $61.01. Its 50% level is $91.34. Both 50% levels are potential upside targets and trigger points for an acceleration to the upside.

On the downside, the major support is $60.835. This is 50% of the all-time high at $121.67. The 52-week moving average is $55.15. This combines with the 50% level to create a major support and value zone at $60.835 to $55.15.

The direction of the market this week is likely to be determined by trader reaction to $78.72. The price action suggests investors have identified value, but don’t seem to have the major catalyst to launch an acceleration to the upside. To some, the catalysts are there, war, high oil prices, inflation. This may have been enough to encourage new buyers to re-emerge at $61.01, but we’re not seeing demand strong enough to encourage the taking of offers, or the FOMO trader.

More Information in our Economic Calendar.