Silver Prices Forecast: Will Weak Jobs Data Spark New Rally?

Silver Market Recap and Forecast: Rate Cut Hopes Drive Quarterly Gains

Silver prices experienced a 1.37% decline last week but managed to secure a third consecutive quarterly gain. The market’s performance was influenced by conflicting factors: U.S. inflation data aligning with expectations bolstered prospects for potential Federal Reserve rate cuts, while higher Treasury yields and a firmer dollar exerted downward pressure.

Last week, XAG/USD settled at $29.14, down $0.41 or -1.37%.

Inflation Data Impacts

The Personal Consumption Expenditures (PCE) Index, the Fed’s preferred inflation gauge, showed no increase from April to May. This data reinforced the trend of gradual inflation pullback, lending support to silver prices. David Meger of High Ridge Futures noted, “We are continuing on trend in a very incremental slow pullback of inflation.”

The PCE report revealed a 0.1% gain for May and a 2.6% increase year-over-year, marking the lowest annual rate since March 2021. This development boosted investor confidence in the Fed’s ability to manage inflation without further aggressive rate hikes.

Interest Rate Expectations

Market sentiment shifted decidedly towards rate cut expectations. Traders are now pricing in a 68% chance of a Fed rate cut in September, up from 64% before the inflation data release. This shift has been a key driver for silver’s recent quarterly performance.

San Francisco Fed President Mary Daly viewed the latest inflation figures as “good news that policy is working,” reinforcing market optimism. However, Fed Governor Michelle Bowman suggested openness to further rate increases, highlighting the ongoing debate within the central bank.

Treasury Yields and Dollar Movement

The 10-year U.S. Treasury yield closed up 2.02% last week, ending a three-week decline. Concurrently, the U.S. Dollar Index finished 0.02% higher, marking its fourth consecutive weekly gain. These factors exerted pressure on silver prices, partially offsetting the positive impact of rate cut expectations.

Economic Indicators

Additional economic reports provided mixed signals. The Chicago PMI jumped to 47.4 from 35 in May, exceeding expectations. The University of Michigan consumer sentiment also showed a better-than-anticipated reading of 68.2 for June. These indicators will be crucial in shaping silver’s near-term direction.

Market Forecast

Looking ahead, silver’s performance will likely hinge on several key factors. The upcoming U.S. employment report and Fed minutes will be closely watched by traders. A weaker jobs report could reinforce rate cut expectations, potentially boosting silver prices. However, any signs of persistent inflation or stronger economic data could temper these gains.

The market will also be attentive to speeches by Federal Reserve officials, particularly Chair Jerome Powell’s address in Portugal. These communications could provide further insight into the Fed’s thinking on monetary policy.

Given the current economic conditions and market sentiment, the outlook for silver remains cautiously bullish in the short term. The metal’s ability to maintain quarterly gains despite recent weekly losses suggests underlying strength. However, traders should remain alert to potential volatility as new economic data emerges and the balance between rate cut expectations and economic indicators continues to evolve.