Silver (XAG) Forecast: Rally Faces Test as Inflation Clouds Fed’s Path

Can Prices Hold Gains as Inflation Clouds the Fed’s Path?

Silver extended its rally last week, marking its fourth consecutive weekly gain before encountering resistance. The market surged to its highest level since late October, driven by a combination of strong industrial demand, tightening supply, and rising gold prices. However, inflation data and shifting Federal Reserve expectations have introduced fresh uncertainty, leaving traders questioning whether silver can sustain its momentum.

With inflation still running hot and economic data showing mixed signals, silver’s next move will depend on how markets interpret the Fed’s policy outlook in the coming weeks.

Technically, it took a while but momentum shifted to the upside on the weekly chart when buyers took out $32.33. The market also took out a short-term retracement zone at $31.81 to $32.53.

Next week, the key level to watch is $31.81. We could see some weakness on a sustained move under this level, but we expect to see buyers step in the dip because the fundamentals are still strong. Recapturing $32.53 will be a sign of strength, while overtaking last week’s high at $33.39 could trigger an acceleration toward last year’s high at $34.87.

Last week, XAG/USD settled at $32.15, up $0.34 or +1.07%.

Did Inflation Data Change the Fed’s Rate Cut Outlook?

Last week’s inflation reports showed that price pressures remain elevated. The XAG/USD rose 0.5% in January—hotter than expected—while the Producer Price Index (PPI) climbed 3.5% year-over-year, reinforcing concerns that inflation is not cooling as quickly as markets had hoped. These numbers cast doubt on the timing of Fed rate cuts, which many traders had previously expected to begin by mid-year.

The upcoming Personal Consumption Expenditures (PCE) report, the Fed’s preferred inflation measure, will be critical in shaping rate expectations. If it shows persistent inflation, markets may price in a longer period of restrictive monetary policy, which could weigh on silver in the short term. However, if inflation shows signs of easing, expectations for a dovish Fed shift could provide a boost for silver prices.

Is the U.S. Economy Slowing? What Does It Mean for Silver?

While inflation remains a concern, last week’s U.S. retail sales report raised fresh questions about economic strength. Retail sales unexpectedly fell 0.9% in January, well below expectations, suggesting that consumer spending is weakening. A slowdown in consumer demand could indicate that higher prices and borrowing costs are beginning to take their toll on the economy.

If further data confirms slowing growth, the Fed may have to reconsider its stance, which could benefit silver as traders shift toward safe-haven assets. However, if inflation remains the dominant theme, the Fed could remain cautious, keeping pressure on precious metals.

Will Trade Policy Drive Inflation Higher?

Beyond the economic data, renewed trade policy tensions have also entered the picture. President Donald Trump has directed his team to draft retaliatory tariffs on countries imposing taxes on U.S. imports, raising concerns about inflationary risks. If tariffs increase costs for businesses and consumers, inflation could remain stubbornly high, making it even harder for the Fed to justify rate cuts.

On the other hand, if trade tensions weigh on business sentiment and global economic activity, it could weaken inflationary pressures, giving the Fed more flexibility. This uncertainty is another factor traders must consider when assessing silver’s outlook.

Silver Market Forecast: Bullish or Bearish?

Silver’s ability to hold its recent gains depends on how the market digests upcoming inflation data and Fed signals. If the PCE report confirms that inflation remains sticky and the Fed sticks to its higher-for-longer stance, silver could struggle to advance further in the short term.

However, if the Fed acknowledges signs of economic slowing or if inflation data starts to soften, silver could find renewed support. Strong industrial demand and a weakening economic backdrop could drive more safe-haven interest, setting the stage for another leg higher.

For now, silver remains in a bullish position, but traders should watch the Fed’s response to inflation and economic data closely. The next few weeks will be critical in determining whether silver continues its rally or faces renewed selling pressure.

More Information in our Economic Calendar.