Silver Price Analysis: XAG/USD soars to near $23.35 on soft US PPI, escalating geopolitical tensions

Silver price (XAG/USD) has rallied to near $23.35 as the United States Bureau of Labor Statistics (BLS) has reported a softer-than-anticipated Producer Price Index (PPI) report for December. The headline PPI contracts by 0.1% and core PPI remains stagnant for the second month in a row. Investors projected headline and core PPI rising by 0.1% and 0.2% respectively.

Producers at factory gates rose prices of goods and services at a slower pace of 1.0% against 1.3% as anticipated by investors. The core PPI decelerated sharply to 1.8% vs. consensus of 1.9% and the prior reading of 2.0%.

A soft PPI data has strengthened bets in favour of an interest rate cut decision by the Federal Reserve (Fed) in March. As per the CME Fedwatch tool, market participants see the likelihood of the Fed cutting interest rates by 25 basis points (bps) in March at 76%, which were earlier at 66%.

The market mood has turned risk-off as the US and UK military groups have launched airstrikes on Iran-backed Houthi rebels amid retaliation for attacks at merchant vessels shipping from Red Sea. This has escalated risks of Iran entering into Israel-Hamas war at Gaza. Deepening Middle East tensions have improved appeal for non-yielding assets.

Meanwhile, the US Dollar Index (DXY) has fallen vertically as soft PPI data has empowered geopolitical tensions.

Silver technical analysis

Silver price has delivered a V-shape recovery after discovering buying interest near the horizontal support plotted from December 13 low at $22.51 placed on a two-hour scale. The white metal has climbed above the 20- and 50-period Exponential Moving Averages (EMAs), which indicates that the near-term demand has turned bullish.

Broadly, the asset is forming a Descending Triangle chart pattern, which indicates a sheer volatility contraction. The Relative Strength index (RSI) (14) is on the verge of shifting into the bullish range of 60.00-80.00. If the 14-period RSI manages to do so, a bullish momentum would be activated.

Silver two-hour chart