Silver (XAG) Forecast: Will Key US Data Reverse Bearish Trend?

Silver Retreats Despite Dollar Weakness as Traders Eye Key US Data

Silver prices declined on Tuesday, diverging from gold’s performance despite a weaker dollar and lower Treasury yields. Investors are awaiting crucial US economic data that could influence the Federal Reserve’s interest rate decisions.

At 11:51 GMT, XAG/USD is trading $29.06, down $0.07 or -0.24%.

Market Focus on US Economic Indicators

Traders are closely watching Thursday’s second-quarter GDP report and Friday’s June personal consumption expenditures (PCE) data. These reports are expected to provide insights into the Fed’s potential timeline for interest rate cuts. The PCE index, the Fed’s preferred inflation gauge, will be particularly significant for monetary policy guidance at next week’s Fed meeting.

Silver Price Movement

XAG/USD hit an intra-day low of $28.67, just above key support at $28.57. This level is a potential trigger point for an acceleration to the downside. This downward trend is primarily attributed to concerns over industrial demand, stemming from China’s economic slowdown. China’s Q2 GDP and retail sales figures fell short of expectations, potentially impacting silver demand as China is a major consumer of industrial metals.

Federal Reserve Rate Cut Expectations

Market participants are pricing in a high probability of the first interest rate cut occurring in September. While Fed policymakers have indicated they’re not ready to cut rates, Fed Chairman Jerome Powell suggested the central bank might not wait for inflation to reach 2% before considering cuts. Traders are anticipating two more rate cuts by year-end.

China’s Economic Impact

China’s economic challenges, including a prolonged property downturn and job insecurity, have led to expectations of additional stimulus measures from Beijing. The People’s Bank of China recently cut key interest rates, boosting global risk sentiment but creating headwinds for silver as a safe-haven asset.

Market Forecast

The short-term outlook for silver appears bearish. Pressure from China’s economic slowdown and improved global risk sentiment following the PBoC’s rate cuts are likely to continue weighing on silver prices. However, potential Fed rate cuts later this year could provide support, creating a mixed outlook for the metal in the medium term.

XAG/USD is edging lower on Tuesday, while attempting to bounce back from a five-day skid. Early in the session, traders showed respect for the June 26 bottom at $28.57 with the selling pressure stopping at $28.67. But it’s too early to tell if this can create the momentum needed to turn prices positive.

The bottom at $28.67 remains the most important support. An aggressive trade through this level could trigger a steep break with the 200-day moving average at $25.78 a potential major target.