Silver Price Forecast: Supported as Fed, ECB Near End of Tightening Cycles

Highlights

• Silver on track for largest monthly gain since March.
• Prospects of U.S. interest rates nearing peak weaken dollar.
• Market players validate belief in central banks’ policy shift.

Overview

Silver prices are on track to post achieve their largest monthly gain in four, fueled by mounting expectations that major global central banks may be reaching the end of their current monetary tightening cycles. Spot silver has led the rally, surging by 6.5% overall, despite experiencing a minor 0.5% dip on the day, currently trading at $24.22 an ounce. The recent prospect of the U.S. interest rates nearing their peak has weakened the dollar, leading to its second consecutive monthly decline.

Fed Rates and Inflation Impact

Market players are feeling validated in their belief that the Federal Reserve’s rates are either at or near their terminal point, especially with crucial U.S. inflation reports indicating a faster pace of disinflation. This positive sentiment has had a positive impact on silver, which found support around $22.66 to $22.81. It’s worth noting that the market tends to experience choppy price action and less stable returns during this period of the year.

US Inflation Slows

Recent data reveals that annual U.S. inflation rose at its slowest pace in over two years in June, reinforcing the belief that the Federal Reserve is approaching the end of its aggressive rate-hiking cycle, which has been the fastest since the 1980s. The Commerce Department’s report indicated that the personal consumer expenditures index rose just 0.2% month over month when excluding volatile food and energy prices, aligning with economists’ expectations.

The core PCE (Personal Consumption Expenditures) saw a year-over-year increase of 4.1%, slightly below expectations. Federal Reserve Chair Jerome Powell mentioned in a press conference after the interest rate decision that inflationary pressures had eased, but the 2% inflation target was yet to be achieved, emphasizing that monetary policy decisions would be data-dependent and made on a meeting-by-meeting basis.

ECB Policymakers Offer Positive Assessment

Adding to the positive outlook, two European Central Bank policymakers, Yannis Stournaras and Peter Kazimir, suggested that the end of the ECB’s tightening cycle was approaching, although they differed on the likelihood of one more rate hike. It’s worth noting that higher interest rates typically deter investors from buying non-interest-paying bullion, which is priced in dollars.

Short-Term Outlook:  Patience Required

Looking ahead, the next significant catalyst, besides geopolitical risks, would be substantial progress on China’s stimulus measures or the expected commencement of Fed rate cuts by the first quarter of the following year. This forecast comes from Baden Moore, the head of carbon and commodity strategy at the National Australia Bank, underlining the potential impact on the precious metals market.

Technical Analysis

The 4-hour chart analysis for Silver indicates a mixed outlook. The current price of 24.370 is below the 50-4H moving average at 24.828, indicating a bearish trend. However, the price remains above the 200-4H moving average at 23.847, suggesting potential support and room for a bullish rebound. The 14-4H RSI at 38.89 indicates weaker momentum but not at oversold levels.

Silver is holding above the main support area (23.106 to 13.330), while facing a challenge around the main resistance area (25.170 to 25.455). Traders should monitor the price’s interaction with the support/resistance areas as well as the moving averages for potential bullish or bearish signals.