Silver (XAG) Forecast: Can $27.22 Support Hold as PCE Inflation Data Looms?

Silver Prices Under Pressure Ahead of Key PCE Data

Silver prices are hovering near critical support levels as traders await the release of the Personal Consumption Expenditures (PCE) inflation report. The market’s reaction to this data could trigger significant price movements in either direction.

At 11:37 GMT, XAG/USD is trading $27.77, down $0.08 or -0.29%.

Current Market Situation

Silver is trading just above the crucial 50% support at $27.22. The metal has experienced a sharp sell-off, dropping about 5% this week and reaching its lowest level since May 9. This downward trend persists despite growing optimism for a Federal Reserve rate cut in September.

Factors Influencing Silver Prices

Recent stronger-than-expected U.S. economic growth data has put pressure on silver prices. The metal typically underperforms during periods of economic strength when other assets become more attractive to investors.

Additionally, high prices and seasonal factors have dampened demand in top consumer markets. China’s net gold imports via Hong Kong fell 18% in June, while Swiss gold exports to China hit their lowest level since May 2022.

PCE Report and Market Expectations

Today’s PCE inflation report, the Fed’s preferred measure of inflation, is due at 12:30 GMT. Economists surveyed by Dow Jones expect headline PCE to come in at 2.5% annually and 0.1% month-over-month.

Treasury Yields and Dollar Impact

After the PCE report release, silver traders will closely monitor movements in Treasury yields and the U.S. Dollar Index. Currently, the 2-year Treasury yield is dipping as investors anticipate the inflation data.

Market Forecast

The short-term outlook for silver appears bearish. If the 50% support at $27.22 fails to hold, we could see an accelerated decline in prices. However, a surprise in the PCE data could quickly shift market sentiment. Traders should be prepared for increased volatility following the report’s release and adjust their positions accordingly.

Technical Analysis

Trader reaction to the pivot at $27.22 will set the tone on Friday. With the market nearing oversold territory, XAG/USD could bounce off this level and head back up toward $28.57, but it’s going to need help from a weaker PCE report.

On the negative side, a failure at $27.22 could drive prices sharply lower with the 200-day moving average at $25.87 the likely target. I expect new buyers and profit-takers to step up activity on a test of this indicator.