Silver (XAG) Forecast: Eyes on Inflation Data as Silver Flirts with Critical $30 Level

Silver Prices Dip as Markets Await Key Inflation Data

Silver prices retreated on Wednesday as the dollar strengthened slightly, with traders closely watching for the upcoming U.S. inflation report. This report is expected to provide crucial insights into the Federal Reserve’s potential rate cut in September.

At 10:11 GMT, XAG/USD is trading $29.56, down $0.42 or -1.39%.

Market Sentiment

Silver recently reached a two-month peak of $30.19 on August 26. However, uncertainty surrounding the Fed’s approach and concerns about weak demand from China have kept traders cautious. The market appears to be seeking a catalyst to push silver above the significant $30.00 threshold.

Fed’s Stance and Rate Cut Expectations

Fed Chair Jerome Powell’s recent comments suggesting that “the time has come for policy to adjust” have bolstered expectations for a rate cut at the central bank’s next meeting. Market participants are pricing in a 66% probability of a 25 basis point cut and a 34% chance of a 50 basis point reduction in September, according to CME FedWatch tool.

Economic Indicators

Investors are eagerly anticipating Friday’s release of the U.S. personal consumption expenditures (PCE) data, the Fed’s preferred inflation gauge. This report, along with the upcoming U.S. GDP estimate, will be crucial in assessing the health of the world’s largest economy and potentially influencing the Fed’s decision.

Dollar Performance

The U.S. dollar index hovered near a 13-month low at 100.61, reflecting a 3.4% decline for the month. This weakness in the dollar typically supports precious metals prices. However, some analysts suggest that downward momentum on the dollar may be waning, with support around the 100.18 level.

Market Forecast

Given the current market conditions, silver prices may experience short-term volatility as traders digest upcoming economic data. The precious metal’s performance will likely be influenced by the strength of Friday’s PCE report and any surprises in the GDP estimate. A weaker-than-expected inflation reading could bolster the case for a more aggressive rate cut, potentially supporting silver prices. However, persistent concerns about Chinese demand may limit upside potential. Traders should remain vigilant for any signs of a bullish breakout above the $30.00 mark, which could signal a more sustained upward trend.

Technical Analysis

Silver (XAG/USD) is sharply lower on Wednesday with traders testing minor pivot at $29.50. However, the major support is the 50-day moving average at $29.23.

Watch for a technical bounce on the first test of the 50-day MA, but anticipate a steep break if it fails with the pivot at $28.22 the next major target.

Taking out $30.19 will signal a resumption of the uptrend with targets coming in at $31.76 and $32.52.