Silver Price Forecast: XAG/USD struggles to sustain above $29 as Fed signals fewer rate cuts this year

Silver price (XAG/USD) struggles to gain ground above the crucial support of $29.00 in Thursday’s early European session. The white metal weakens as the Federal Reserve’s (Fed) dot plot of the June meeting has indicated that policymakers see only one rate cut this year. A few policymakers also advocated for maintaining the current interest rate framework for the entire year as they are less confident about inflation declining to the desired rate of 2%.

The appeal for precious metals remains vulnerable even though Fed Chair Jerome Powell acknowledged that there is a slower progress in the disinflation process and the Consumer Price Index (CPI) data for May was cooler than expected.

Meanwhile, the US Dollar Index (DXY) has extended its recovery to 104.80 and 10-year US Treasury yields bounce back to 4.33% albeit the CME FedWatch tool shows that traders hold their bets for the Fed to reduce interest rates in the September meeting. Higher yields on interest-bearing assets increase the opportunity cost of holding an investment in non-yielding assets such as Silver.

Going forward, investors will focus on the US Producer Price Index (PPI) data for May, which will be published at 12:30 GMT. Annual headline PPI is estimated to have accelerated to 2.5% from 2.2% in April, with core reading growing steadily by 2.4%.

Silver technical analysis

Silver price will likely deliver a breakdown of the neckline of the Head and Shoulder (H&S) chart pattern, which is marked from May 24 low at $30.00 on a four-hour timeframe. A breakdown of the above-mentioned chart pattern results in a bearish reversal.

The near-term outlook remains uncertain as 20 and 50-day Exponential Moving Averages (EMAs) near $29.50 and $29.90, respectively, are declining.

The 14-period Relative Strength Index (RSI) hovers near 40.00. A bearish momentum would trigger if it breaks below the same.

Silver four-hour chart