Silver Prices Forecast: Sentiment Has Shifted from Bullish to Cautious

Silver Prices Steady Following Major Drop

Silver prices stabilized on Monday after experiencing the steepest decline in over three years on Friday. This correction came as disappointing news from China and the U.S. curbed speculator enthusiasm, particularly those banking on Chinese bullion demand and an anticipated interest rate cut from the Federal Reserve.

Major Decline Driven by U.S. Jobs Report and PBOC’s Actions

On Friday, silver plummeted. This decline was triggered by a stronger-than-expected U.S. jobs report, which reduced the likelihood of a Fed rate cut in September. Additionally, the People’s Bank of China (PBOC) paused its bullion purchases after 18 months, disappointing investors who had bet on continued Chinese demand for gold.

Impact of Chinese and U.S. Economic Data

The PBOC’s inconsistent buying patterns have been a significant influence on bullion prices. Historically, the bank’s buying phases are followed by long breaks, and without resumed purchases of gold, silver prices might remain stagnant. Market sentiment was further jolted by Friday’s dramatic move, with expectations of similar volatility this week being low unless there are major surprises in upcoming economic data, particularly the Consumer Price Index (CPI) report and the Federal Reserve’s policy decision.

Fed Rate Cut Expectations and CPI Report

Expectations for a September rate cut by the Fed dropped from 70% to around 50% following the jobs data. The focus now shifts to the U.S. inflation report, due Wednesday, the same day as the Fed’s policy decision. Analysts predict May’s CPI will show cooling headline inflation, though core inflation might remain high, influencing the Fed’s decision-making process. The Cleveland Federal Reserve estimates headline inflation at 0.08% and core inflation at 0.3% for May, reflecting cooling energy prices but persistent core pressures.

Market Outlook and Fed’s Position

The Fed is expected to maintain current rates in June, awaiting more data before considering rate cuts later in the year. Policymakers are closely monitoring shelter and services prices, as these are significant inflation drivers. The recent robust jobs report suggests the Fed will scrutinize inflation data more intensely before adjusting rates. While May’s CPI is likely to show moderated inflation, the path to the Fed’s 2% target remains protracted.

Short-Term Silver Market Forecast

In the short term, silver prices are expected to remain under pressure. With the Fed likely holding off on rate cuts and China’s demand uncertain, the market outlook leans bearish. Any positive surprise in the CPI data could, however, shift sentiment temporarily. Traders should stay alert to economic releases and Fed communications this week for clearer market direction.

Technical Analysis

XAG/USD prices are edging higher on Monday, but the market remains vulnerable to further downside pressure with the 50-day moving average at $28.77 the next target.

The 50-day MA has been controlling the intermediate uptrend since March 1 so a sustained move under this indicator could cause some significant damage to the chart with the 200-day moving average at $24.66, a potential downside target.