Silver (XAG) Forecast: Silver Stalls as Hot Headline PCE Pressures the Rate Trade

Silver Bounced on the Core Print but the Rest of the Report Did Not Help

Silver caught a bid after core PCE landed on the number. The yearly rate held at 3.3%. That was enough to lift the metal off the lows. It was not enough to break $70 for the fourth session in a row. The high at $69.74 is the same ceiling the market has been hitting all week. Headline PCE came in above expectations.

The GDP price index was revised higher. Income beat by double. The report handed silver bulls one clean number and nothing else.

The bond market has not finished digesting the full package and Warsh speaks at Jackson Hole on Friday with these numbers on his desk.

Silver is sitting in the middle of a range it has been trading for four sessions and the data that was supposed to break it did not.

At 12:35 GMT, Spot Silver (XAGUSD) was trading at $68.92, up $0.25 or 0.37%.

Daily Spot Silver (XAGUSD) Technical Analysis

Spot silver is showing a mixed reaction after the PCE report. The market has remained range-bound for four days after reaching its highest level since June 17 at $70.02.

The chart setup is simple. PCE is no longer the trigger. The mixed reaction has left silver holding below $70.02, and a sustained move through that level could generate enough upside momentum to extend the rally into the 200-day moving average at $72.20.

We could see a technical bounce on the first test of the 200-day moving average, but a move through it with conviction could open the door to the long-term 61.8% level at $74.63.

On the downside, the minor support zone is $66.29 to $65.41. Since the main trend is up, buyers could step in on the first test of this area. If $65.41 fails and sellers come in heavy, the 50-day moving average at $61.33 would come into play.

Core PCE Gave Silver the Only Line That Mattered

Core PCE rose 0.2% on the month. Yearly rate held at 3.3%. Funds that sold into the report covered immediately. The dollar failed to rally on the print and silver caught that bid off the lows. Covering drove the first move. Fresh buying has not shown up yet.

Real spending came in flat. Income ran to 0.4% against 0.2% expected. Paychecks are growing. Real demand is not. September hike odds did not move. Headline inflation stayed firm. The GDP price index was revised higher. Silver ignored both. Core was the only number that mattered for the rate trade and core came in clean.

The problem is that core PCE was the only clean read in the report. Everything else was messy.

The Rest of the Data Is Working Against the Silver Bid

Headline PCE at 0.2% against 0.1% expected. Yearly headline stuck at 3.7%. The GDP price index revised up to 6.4% from 6.2%. Headline durables smashed it at 1.1% against 0.4%. Silver looked at all of that and did not care. The metal traded the core print and nothing else.

The 10-year yield spiked on the data. Silver bounced anyway. Short covering on one number while the bond market is still chewing on the rest. That is not a trade with staying power. Income at 0.4% is the other problem. Paychecks running hot does not give the Fed a reason to back off. Warsh has 3.3% core and 3.7% headline on his desk Friday. One paragraph from Jackson Hole can flip the way silver is reading this report.

Silver Lifted Off the Lows and Stalled in the Middle of the Range

Silver has been range-bound for four sessions under $70.02. The PCE data did not break the range. The metal lifted off the lows, traded up through the middle of the day’s range and stalled.

The 10-year and the dollar are running the tape from here. Silver followed the dollar lower after core landed in line. It did not build its own story. A move of 0.37% on a day range of more than a dollar and a half after the most important inflation print of the month. That is chop with a green close, not a trend day. The market wanted a reason to break $70 and PCE did not give it one.

What to Watch

Silver grabbed the core PCE number and ignored the rest of the report. The bounce is covering, not conviction. Headline inflation stayed firm. GDP prices were revised higher. Income beat. The one dovish line was core holding steady. The 10-year and the dollar have not confirmed the silver bid. Friday is the next event. Warsh at Jackson Hole with a mixed inflation report behind him decides whether the core-only read holds or the full report catches up to the metal.

The trend is up. Silver has stalled under the same ceiling for four sessions. The range held through the most important data release of the month. The 200-day moving average is overhead. The support zone is below. The bond market’s afternoon read on the full report and Warsh’s tone Friday will determine whether silver breaks the range or stays in it.

More Information in our Economic Calendar.