Silver Price Forecast: XAG/USD consolidates below $30 as US PCE inflation looms large

Silver price stays in a tight range near $29.50 with US PCE inflation under the spotlight.
US annual core PCE inflation is estimated to have accelerated to 2.7% in July.
The Fed is almost certain to start reducing interest rates from September.

Sagar Dua FXStreet

Silver price (XAG/USD) trades in a tight range near $29.50 in Friday’s European session. The white metal consolidates as investors have sidelined ahead of the United States (US) Personal Consumption Expenditure inflation (PCE) for July, which will be published at 12:30 GMT.

Economists expect that the annual core PCE inflation, which excludes volatile food and energy prices, rose at a higher pace of 2.7% from June’s reading of 2.6%, with monthly figures growing steadily by 0.2%. Though the Fed is widely anticipated to start reducing interest rates in September, the inflation data will influence speculation about the potential rate cut size.

According to the CME FedWatch tool, 30-day Federal Funds Futures pricing data shows that the likelihood of a probability of a 50-basis points (bps) interest rate reduction in September is 33%, while the rest are favoring a cut by 25 bps.

Ahead of the US inflation data, 10-year US Treasury yields edge lower to 3.86%. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades in a tight range near 101.50. The US Dollar (USD) holds Thursday’s recovery move, driven by better-than-preliminary estimated Q2 Gross Domestic Product (GDP) growth. As per the revised estimates, the US economy expanded at a faster pace of 3% than the flash estimate of 2.8% on an annualized basis.

Silver technical analysis

Silver price remains sideways near $29.50, oscillating inside Thursday’s trading range. The white metal continues to take support from the 20-day Exponential Moving Average (EMA), which trades around $29.00.

August 26 high of $30.20 will be the major resistance for the Silver price bulls.

The 14-day Relative Strength Index (RSI) hovers inside the 40.00-60.00 range, suggesting indecisiveness among market participants.

Silver daily chart

Silver FAQs

Why do people invest in Silver?

Silver is a precious metal highly traded among investors. It has been historically used as a store of value and a medium of exchange. Although less popular than Gold, traders may turn to Silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during high-inflation periods. Investors can buy physical Silver, in coins or in bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.

Which factors influence Silver prices?

Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can make Silver price escalate due to its safe-haven status, although to a lesser extent than Gold's. As a yieldless asset, Silver tends to rise with lower interest rates. Its moves also depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong Dollar tends to keep the price of Silver at bay, whereas a weaker Dollar is likely to propel prices up. Other factors such as investment demand, mining supply – Silver is much more abundant than Gold – and recycling rates can also affect prices.

How does industrial demand affect Silver prices?

Silver is widely used in industry, particularly in sectors such as electronics or solar energy, as it has one of the highest electric conductivity of all metals – more than Copper and Gold. A surge in demand can increase prices, while a decline tends to lower them. Dynamics in the US, Chinese and Indian economies can also contribute to price swings: for the US and particularly China, their big industrial sectors use Silver in various processes; in India, consumers’ demand for the precious metal for jewellery also plays a key role in setting prices.

How do Silver prices react to Gold’s moves?

Silver prices tend to follow Gold's moves. When Gold prices rise, Silver typically follows suit, as their status as safe-haven assets is similar. The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, may help to determine the relative valuation between both metals. Some investors may consider a high ratio as an indicator that Silver is undervalued, or Gold is overvalued. On the contrary, a low ratio might suggest that Gold is undervalued relative to Silver.

Author

Sagar Dua

FXStreet

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.

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