Silver Prices Forecast: Bulls Pinning Hopes on Weak Economic Data

Silver Gives Up Earlier Gains

Silver prices are trading lower today after initially gaining ground in a subdued, low-volume session due to a U.S. bank holiday. The market continues to find support at the 50-day moving average of $29.06, a critical level that could trigger a steep decline if breached.

At 11:14 GMT, XAG/USD is trading $29.42, down $0.07 or -0.23%.

Factors Influencing Silver Prices

On Tuesday, U.S. retail sales data showed minimal growth for May and significant downward revisions for April. This data suggested weak economic activity in Q2, slightly increasing the likelihood of a Federal Reserve interest rate cut in September from 61% to 67%, as indicated by the CME FedWatch tool.

The softer retail sales data initially boosted silver prices, as weaker economic indicators often lead to lower interest rates, reducing the opportunity cost of holding non-yielding assets like silver. Furthermore, weaker Treasury yields and a subdued U.S. dollar also provided early support for the metal.

However, silver’s upward momentum was tempered recently by news that China’s central bank paused its gold purchases in May after 18 months of consistent buying. This pause put a cap on the market and contributed to a significant daily drop in silver prices, the largest such move since November 2020.

Immediate Focus

The upcoming U.S. weekly jobless claims data on Thursday and flash purchasing managers’ indexes on Friday are expected to provide further market direction. Investors are particularly keen on signs of economic weakness that could prompt the Federal Reserve to adopt a more dovish stance.

Short-term Market Forecast

In the short term, silver appears to be at a critical juncture. The metal’s ability to hold above the 50-day moving average at $29.06 is crucial. While the odds of a Fed rate cut have slightly increased, supporting silver prices, the lack of substantial economic data this week may result in a consolidation phase.

Political uncertainty in Europe, particularly with upcoming elections in France and the UK, could also influence market sentiment, potentially providing a lift for silver prices if the geopolitical landscape becomes more volatile.

Overall, silver’s short-term outlook is cautiously bullish. The metal is expected to remain supported above the $29.00 level, driven by expectations of at least one Fed rate cut this year and ongoing global economic uncertainties. However, any significant deviation from this scenario could quickly shift market sentiment, making it essential for traders to stay vigilant.

Technical Analysis

Silver continues to consolidate above the 50-day moving average at $29.06 on Wednesday. This indicator could serve as a lauching pad for an upside breakout, or the trigger point for an acceleration to the downside.

Although we have identified the key level to watch, the next major move in silver is likely to be data-dependent.