Silver Price Forecast: CPI Expected to Drive Near-Term Volatility

Highlights

• Silver (XAG)  recovers from one-month low in early trading. 
• U.S. CPI report heightens market anticipation.
• Federal Reserve official’s mixed signals on interest rates.

Overview

Silver (XAG) prices, having taken a hit and plummeted to a one-month low due to unsteady Chinese trade data and a strong dollar appeal on Tuesday, are now experiencing a slight uptick. The precious metal’s rebound is primarily driven by two factors. Firstly, opportunistic traders, sensing an undervaluation, are diving in. Secondly, many are hedging and adjusting their positions in anticipation of Thursday’s U.S. Consumer Price Index (CPI) report, which will provide insights into the inflation scenario.

Yields, Dollar Controlling Silver Prices

With bond yields and the dollar retracting, the market mood appears to favor silver. This is further compounded by Moody’s recent decision to downgrade the credit ratings of several U.S. banks, impacting the dollar index and longer-dated U.S. Treasury yields.

The Federal Reserve’s stance is becoming increasingly pivotal in this context. Richmond Fed President, Thomas Barkin, and Philadelphia Fed President, Patrick Harker, both signal a wait-and-watch approach to interest rate adjustments. Yet, contrasting views from other Fed officials hint at possible fluctuations in the interest rate landscape in the coming months.

Silver’s Value Faces Rate Uncertainty

The overarching sentiment is one of uncertainty. While Silver (XAG) is vulnerable to U.S. interest rate fluctuations, its intrinsic value remains undisputed. This sensitivity stems from the fact that increased rates up the ante for holding non-yielding assets. As global growth prospects appear shaky, the dollar’s appeal as a safe haven strengthens, further influencing silver prices.

CPI-Driven Silver Volatility Anticipated

In the short term, silver’s trajectory seems to be in the balance. As analysts and traders await the U.S. CPI data, with projections hinting at an acceleration, it’s clear that while this month’s report is significant, next month’s data might be the real game-changer. For now, the market should brace for potential volatility in silver’s price movements, indicating a somewhat bearish near-term forecast.

Technical Analysis

Silver’s current 4-hour price stands at $22.91, marginally below the previous 4-hour close of $22.92. Interestingly, the commodity is currently trading below both the 200-4H and 50-4H moving averages, priced at $23.74 and $23.78, respectively. This positioning suggests a bearish sentiment in the short term. The 14-4H RSI is at 33.24, indicating that Silver is approaching oversold territory, suggesting potential buying interest could emerge soon.

However, the current price sits above the main support zone of $22.70 to $22.28, after a successful test of this area, but considerably below the main resistance area of $25.00 to $25.27. Based on these indicators, the market sentiment for Silver (XAG) appears bearish in the near term.