Silver (XAG) Forecast: Reaction to $31.81 Sets the Tone with CPI as the Next Catalyst

Silver Slips as Market Eyes Key Support Levels

Silver prices are lower on Wednesday, hovering around the critical 50% retracement level at $31.81. Traders are closely watching this level, as movement above or below it is likely to dictate the short-term direction.

A sustained move below $31.81 would indicate increased selling pressure, with the next key support level at $31.17. On Tuesday, silver saw a technical bounce from $31.25, showing that buyers are defending this level. If $31.17 fails to hold, silver could decline further toward a support zone at $30.69, reinforced by the 50-day moving average at $30.63.

On the upside, a sustained break above $31.81 would suggest renewed buying interest. Initial resistance is at $31.95, but a decisive move past this level could put the $32.53 – $32.65 range back in play.

At 11:29 GMT, XAG/USD is trading $31.77, down $0.06 or -0.18%.

Bond Market Holds Steady Ahead of Key Inflation Data

U.S. Treasury yields are steady as traders await the release of the January Consumer Price Index (CPI) report at 13:30 GMT. The data is expected to confirm inflation remains above the Federal Reserve’s 2% target. Forecasts call for a 0.3% monthly increase and a 2.9% annual rise in headline CPI. Core inflation, which excludes food and energy, is also expected at 0.3% monthly and 3.1% annually.

On Tuesday, Fed Chair Jerome Powell reinforced the central bank’s patient stance on rate cuts, stating that moving too quickly could hinder inflation progress, while delaying too long could weaken economic activity. Powell is set to testify before the House Financial Services Committee later today.

Traders are also weighing the potential inflationary impact of President Donald Trump’s new tariffs, which include a 25% duty on steel and aluminum imports.

Inflation Data to Shape Fed Expectations

While markets are focused on headline inflation numbers, analysts will be watching for trends in key categories. Rising car prices, auto insurance costs, and communication services are expected to drive inflation higher, while airfares and rent-related categories may offer some downward pressure.

Bank of America expects inflation to remain above target, strengthening the case for the Fed to hold rates steady. The bank sees no cuts in the near term, contradicting market expectations for a potential reduction in July. Goldman Sachs also predicts further disinflation in areas like autos and housing but warns that tariff policies could counteract these effects.

Despite concerns, some surveys suggest inflation expectations are cooling. The National Federation of Independent Business reported that only 18% of small businesses see inflation as their biggest challenge, the lowest level since late 2021. The Cleveland Fed’s survey of firms also showed a notable decline in inflation expectations over the next 12 months.

Silver Market Forecast

Silver traders should keep a close eye on price action around $31.81. A break below this level increases the likelihood of a retest of $31.17, with potential downside risk toward $30.69 – $30.63 if selling intensifies. On the other hand, if buyers push silver above $31.95 with conviction, a rally toward $32.53 – $32.65 could unfold.

Macroeconomic factors, including today’s CPI report and Powell’s testimony, will likely drive market sentiment. If inflation data comes in hotter than expected, silver could face pressure from rising bond yields and a stronger dollar. However, any signs of cooling inflation could fuel speculation of Fed rate cuts, supporting precious metals.

More Information in our Economic Calendar.