Silver Prices Outlook: Boosted by Rate Cut Hopes, 50-Day Moving Average

Silver Prices Edge Higher Amidst Economic Data and Fed Speculations

Silver prices are edging higher on Friday as they continue to consolidate, attempting to reestablish support and resume the uptrend. Traders are awaiting the next catalyst that will either drive the market through the 50-day moving average or reinforce support at this key indicator.

At 10:30 GMT, XAG/USD is trading $29.20, up $0.24 or +0.81%.

Economic Data and Market Reaction

Silver prices are up on Friday but have remained flat for the week. US economic data indicates a softening of price pressures, which has fueled optimism about a potential rate cut by the Federal Reserve. However, the lack of strong central bank buying of gold, particularly by China, may be capping gains.

Fed’s Influence and Interest Rate Expectations

Market participants are looking for cues from Federal Reserve officials’ comments. The general consensus is that the market expects two interest rate cuts this year, given the softening inflation numbers. While there could be a sentiment-driven pullback in silver prices in the short term, many investors view this as a buying opportunity.

On Thursday, US producer prices unexpectedly fell in May, further indicating subsiding inflation and keeping hopes of a Fed rate cut in September alive. This followed a cooler-than-expected CPI report just ahead of the Fed meeting on Wednesday, where the central bank indicated that rate cuts might start as late as December. The yield on 10-year US Treasury bonds edged lower on Friday as traders reacted to the drop in wholesale prices.

Fed’s Current Stance

The Fed opted to hold rates steady at 5.25%-5.50% on Wednesday and indicated just one cut this year. According to the CME FedWatch Tool, traders see a 67% probability of a rate cut in September, up from 63% before the producer price data. Lower interest rates reduce the opportunity cost of holding non-yielding bullion like silver.

Upcoming Data and Market Outlook

Data due on Friday includes the University of Michigan consumer survey for June and US import and export data for May. Continued weakness in inflation would enhance silver’s appeal as a hedge against economic downturns, supporting the outlook for potential rate cuts this year.

Market Forecast

In the short term, silver prices may experience some pullback due to market sentiment. However, with the anticipation of rate cuts and continued softening of inflation, the overall outlook remains bullish. Investors should watch for key economic data and Fed communications to gauge the next significant move in silver prices. Technically, the direction of XAU/USD will be determined by trader reaction to the 50-day moving average.

Technical Analysis

XAG/USD is currently straddling the 50-day moving average at $23.61. Trader reaction to this intermediate trend indicator will set the near-term tone.

A sustained move over the 50-day MA will indicate the presence of buyers, but we don’t see much upside potential without a major catalyst. Any rally is likely to be limited by a 50% to 61.8% retracement zone.

The way of least resistance is down. Taking out the 50-day MA with heavy selling volume could trigger an acceleration to the downside.