Silver Prices Forecast: Will Soft CPI Data Fuel Surge to Multi-Year High?

Silver Reaches One-Month High

Silver prices surged to their highest level in over a month on Friday, following U.S. jobs data that indicated a softening labor market. This has heightened expectations for a Federal Reserve interest rate cut in September. Contributing factors to the weekly gain in silver include lower yields and a weaker dollar.

Last week, XAG/USD settled at $31.22, up $2.08 or +7.14%.

U.S. Jobs Data and Market Reactions

The U.S. non-farm payrolls report revealed job growth of 206,000 in June, slightly exceeding the 190,000 forecasted by economists. However, job growth estimates for May were revised down to 218,000 from 272,000, and April’s figures were adjusted to 108,000 from 165,000. The unemployment rate increased to 4.1%, above the expected 4.0%. Following this data, the probability of a September rate cut rose to about 72%, as reflected in U.S. interest-rate futures.

Dollar and Treasury Yields

The dollar weakened to a three-week low against major currencies, making silver more affordable for international buyers. Concurrently, the yield on the benchmark U.S. 10-year Treasury note decreased, enhancing the appeal of non-yielding silver. The U.S. dollar index fell by 0.92% for the week, reinforcing the view that a rate cut is likely due to slowing job growth and rising unemployment.

Technical Analysis

The attached chart shows silver’s strong upward movement, with the price reaching $31.22, marking a 7.14% weekly gain. The recent rally saw silver break above key resistance levels at $29.80 and $30.55. The next significant resistance level is at the 11-year high of $32.52. Support levels to watch include $28.57 and $27.22, which could act as potential pullback points if the rally loses momentum.

Investor Sentiment and Predictions

Investor sentiment is strongly aligned with the expectation of a rate cut. Futures markets now show a 72% chance of a 25 basis point rate cut in September, up from 57.9% the previous week. Analysts at Jefferies noted that if upcoming inflation data is subdued, the Fed might signal a rate cut as early as their September meeting. Core CPI is expected to remain steady at 0.2%, and a softer CPI reading would support the case for a rate cut, indicating that the high inflation readings from Q1 were anomalies.

Fed’s Position and Future Moves

Fed Chairman Jerome Powell has acknowledged improvements in the labor market but emphasized the need for more progress on inflation before easing monetary policy. Powell’s upcoming testimony before Congress and the July Fed meeting are seen as opportunities for him to lay the groundwork for a September rate cut. Treasury yields fell on the jobs report, with the 10-year yield dropping over 6 basis points to 4.28%, and the 2-year yield declining nearly 8 basis points to 4.61%.

Market Forecast

Given the current economic indicators and technical analysis, the short-term outlook for silver appears bullish. If the Federal Reserve signals a September rate cut, silver prices could aim for the 11-year high of $32.52. Market participants will closely watch next week’s inflation data for further clues on the Fed’s monetary policy direction.