Silver Prices Forecast: XAG/USD Facing Downside Risks Ahead of Key US Data

Silver Market Update: Investors Eye Key U.S. Economic Reports

Silver prices are nearly flat on Monday after recovering from an early session dip that took prices to their lowest level since May 17. The market has been choppy as investors await multiple U.S. economic reports this week to gauge the health of the economy, following Friday’s PCE inflation report hinting at potential Federal Reserve rate cuts in 2024.

At 11:34 GMT, Silver (XAG/USD) is trading $30.40, unchange.

Key Economic Data Releases

This week is pivotal for the silver market, with investors closely monitoring the Institute of Supply Management’s (ISM) nationwide PMI reading, the ADP employment report on Wednesday, and non-farm payrolls data due on Friday. The core Personal Consumption Expenditures (PCE) index released on Friday showed a 0.2% monthly increase and a 2.8% annual rise, slightly above expectations. Including food and energy costs, the PCE rose 0.3% month-over-month and 2.7% year-over-year, matching forecasts. This data suggests U.S. inflation stabilized in April, raising the probability of a rate cut in September to 53%.

Market Reactions and Expectations

U.S. Treasury yields fell on Monday as investors awaited further economic data, including the JOLTs job openings and the May jobs report. The ISM’s purchasing managers’ index reports for both services and manufacturing sectors are also due, which will be critical for market sentiment. Concurrently, the European Central Bank (ECB) is expected to announce its first interest rate cut since 2019 on Thursday, ahead of the next Federal Reserve meeting on June 11-12. The dollar began the week slightly lower, influenced by last week’s data showing stabilized U.S. inflation, which supports potential Fed rate cuts later in the year.

Global Market Developments

In the global markets, the dollar index fell 1.56% in May, reflecting shifting expectations on Fed rate cuts. Sterling and the euro showed marginal increases ahead of the ECB meeting, where a rate cut is highly anticipated. Japan’s Ministry of Finance confirmed significant interventions in the forex market to support the yen, which remains weak against the dollar despite these efforts.

Short-term Market Forecast

Given the current data, the short-term outlook for silver is cautiously bullish. Traders anticipate a slowdown in U.S. economic data, which could prompt the Federal Reserve to cut interest rates later this year. Such a move would likely boost silver prices, as lower rates reduce the opportunity cost of holding non-yielding assets like bullion.

However, ongoing volatility in economic indicators will keep the market on edge in the short term, as investors await clear signals from upcoming reports. The market remains vulnerable to downside risk, especially following the confirmed double-top formation at $32.30 and $32.52.

We are cautiously optimistic because traders have been buying dips. If this pattern continues, silver prices could see another breakout to the upside. Conversely, if this buying pattern changes, prices could drop to at least $28.25.