Silver Prices Forecast: XAG/USD Eyes Quarterly Gain as PCE Data Approaches

Silver Poised for Quarterly Gain as Crucial PCE Data Looms

Silver prices held steady on Friday, on track for another quarterly rise. Traders eagerly await the U.S. Personal Consumption Expenditures (PCE) data, seeking insights into the Federal Reserve’s interest rate strategy and its potential impact on precious metals.

At 11:58 GMT, XAG/USD is trading $29.32, up $0.34 or +1.18%.

Silver’s Resilient Performance

The precious metal has maintained its strength, with the current consolidation phase proving remarkably shallow. Hedge funds that joined the rally in February and March remain unchallenged, indicating sustained bullish sentiment. In May, silver reached an 11-year high, propelled by a combination of factors including rate cut expectations, China’s stimulus measures, and escalating geopolitical tensions.

Critical Support Level and Bullish Outlook

Market analysts emphasize that as long as silver holds above the crucial $28.66 support level, the risk of a forced long-liquidation phase remains minimal. This resilience, coupled with multiple supportive drivers, has led to optimistic projections. Experts see potential for silver to reach $35 before year-end, representing a significant upside from current levels.

PCE Data: A Key Catalyst

The U.S. Personal Consumption Expenditures (PCE) numbers, the Fed’s preferred inflation gauge, are due at 12:30 GMT. City Index senior analyst Matt Simpson noted that a soft set of PCE figures is crucial to maintain hopes for Fed easing, which would further support silver prices. The Dow Jones forecasts a flat monthly headline PCE reading and a modest 0.1% rise in core PCE, compared to 0.3% and 0.2% increases in April, respectively.

Fed’s Cautious Stance on Inflation

Despite recent progress in curbing inflation, Fed officials maintain a cautious outlook. Fed Governor Lisa Cook emphasized that returning inflation to the 2% target is an ongoing process, not a ‘fait accompli’. This stance is echoed by her colleagues, who remain circumspect about the timing and pace of potential rate cuts.

Market Expectations vs. Fed Projections

Futures markets are currently pricing in a strong likelihood of the Fed enacting its first quarter-percentage-point cut in September, with another to follow by year-end. This contrasts with the Fed’s more conservative projection of just one cut this year, highlighting the divergence between market expectations and central bank guidance.

Silver’s Near-Term and Long-Term Prospects

In the short term, silver’s outlook remains bullish as long as it maintains support at $28.66. Traders should closely monitor the upcoming PCE data, which could significantly influence both Fed policy decisions and silver prices. The long-term forecast is even more optimistic, with multiple economic factors and the possibility of Fed rate cuts supporting projections of silver reaching $35 by year-end.

As the market awaits the PCE report, silver traders should remain alert to potential volatility and be prepared to adjust their strategies based on the data’s implications for monetary policy and precious metals demand.

Technical Analysis

Silver prices are currently at $29.32, reflecting a 1.21% increase. Key resistance levels are at $30.59 and $32.52. Support levels are identified at $28.66 and $26.90. The 50-day SMA is at $29.21, while the 200-day SMA is at $25.09, indicating bullish momentum as the price remains above both moving averages.