Silver Prices Forecast: Buyers Reacting Positively to Core PCE Inflation Data

Treasury Yields and Inflation Data

Silver prices edged higher on Friday as U.S. Treasury yields dipped following the release of the Federal Reserve’s preferred inflation measure. The Personal Consumption Expenditures (PCE) price index data met pre-report expectations, easing investor concerns about more aggressive rate hikes. This development led to a decrease in Treasury yields, supporting the demand for silver.

At 13:04 GMT, Silver (XAG/USD) is trading $31.74, up $0.56 or +1.80%.

Impact of PCE Data on Silver

The core PCE, which excludes food and energy costs, rose by 0.2% in April, aligning with economists’ forecasts. On an annual basis, core PCE increased by 2.8%, slightly above the expected 2.7%. Including food and energy prices, PCE climbed by 0.3% for the month and 2.7% year-over-year. These figures suggest that inflation remains persistent, though not significantly worse than anticipated.

U.S. Dollar Weakness

The U.S. Dollar weakened against a basket of currencies in response to the PCE data, further boosting silver prices. A weaker dollar makes dollar-denominated commodities like silver more attractive to foreign investors, increasing demand.

Federal Reserve’s Stance

Inflation has been stickier than previously anticipated, delaying expectations for interest rate cuts. According to CME Group’s FedWatch tool, traders are not expecting rate cuts in the Federal Reserve’s June or July meetings, with a 50% chance of a cut in September. The next Fed policy meeting is scheduled for June 11-12, with officials indicating a need for more substantial evidence of easing inflation before considering rate reductions.

Market Forecast

Given the current economic indicators, the outlook for silver remains bullish in the short term. The dip in Treasury yields and the weakening U.S. Dollar, combined with persistent inflation, are likely to support higher silver prices. Investors should monitor upcoming economic data and Fed policy statements for further market direction.

Technical Analysis

XAG/USD is trading higher on Friday, putting the market in a position to challenge the recent 11-year high a $32.52. Overcoming this level with conviction could trigger an acceleration to the upside. This would reaffirm the short-term uptrend. A trade through $30.04 will change the short-term trend to down.

The intermediate trend is also up. It is represented by the 50-day moving average, currently at $28.16.