Silver (XAG) Forecast: Will FOMC and PCE Spark Silver Bounces or Trigger Fresh Selling?

Silver Traders Sit on the Fence Awaiting Fed Clarity

Spot silver settled lower last week in a relatively tame trade with the market showing a limited, but weak reaction to a pair of economic reports. Technical support at $74.99 to $74.63 held up well as did short-term resistance at $83.61. However, the price action suggests traders are waiting for the next major catalyst to either drive prices toward $92.87 resistance or into a support cluster at $64.06 to $63.97.

Fed Uncertainty Takes Center Stage

Based on last week’s price action, the economy and the Fed are the key concerns for silver traders at this time. The excessive speculation, talk of a speculative bubble and the higher margins continue to be absorbed. The wide range consolidation is part of this process, but if $64.06 is taken out with conviction, we could see selling pressure all the way down to the 52-week moving average at $48.07.

Jobs and Inflation Data Send Mixed Signals

Last week, traders were eyeing the U.S. Non-Farm Payrolls report and Consumer Price Index data. Although their impact drove 10-year Treasury yields and the U.S. Dollar lower, silver still weakened. In my opinion, there was something in the data silver traders didn’t like and I think it was Fed-related.

The latest January jobs report showed that nonfarm payrolls jumped by 130,000, more than economists forecast. This probably didn’t bother traders that much since Fed Chairman Jerome Powell hinted in his January press conference that he wasn’t as worried about the labor market as he was about inflation. However, the fact that it was more than double the estimate should be a concern for those like long silver traders, betting on two Fed rate cuts this year.

Now, the CPI headline number came in lower than expected, but Core CPI remained a challenge. Putting the two together keeps the Fed uncertainty at the forefront. Perhaps just enough to keep a lid on silver prices, but not enough to drive it sharply lower.

PCE Inflation Data Could Tip the Scales

This brings us to this week’s reports. On tap are Fed minutes, advanced GDP and PCE inflation. The latter should exert the most influence on the silver market. The CPI report may have come in soft, but the PCE report is the one that the Fed follows closely. Coupled with the FOMC minutes, silver traders could get enough information about the state of the economy.

If the PCE Index exceeds expectations then look for another round of selling pressure in silver. The market is a little fragile after the speculative bubble burst so our bias is to the downside. And with speculators beat up, I think it’s going to take more than weak PCE data to get the market back on track. Strong inflation data, on the other hand, could push prices closer to the true value, which I think is the 52-week moving average, currently at $48.07.

More Information in our Economic Calendar.