Silver price rebounds after in-line US PCE data eases Dollar support

Silver rebounds after two days of sharp losses and climbs back above $58 on Thursday.
US PCE inflation data comes in broadly in line with expectations, limiting upside pressure on the US Dollar.
A weaker US Dollar supports a technical rebound in precious metals, although expectations for restrictive monetary policy remain in place.

Ghiles Guezout FXStreet

Silver (XAG/USD) rebounds on Thursday, trading around $58.65 at the time of writing, up 2.16% on the day. The precious metal recovers part of its steep losses from recent days, supported by a modest pullback in the US Dollar (USD) following the release of US inflation data that broadly matched market expectations.

The Bureau of Economic Analysis reported that the Personal Consumption Expenditures (PCE) Price Index rose 4.1% YoY in May, in line with expectations, up from 3.8% in April. The core PCE Price Index, the Federal Reserve's (Fed) preferred inflation gauge, accelerated to 3.4% YoY from 3.3%, also matching forecasts. On a monthly basis, headline PCE increased 0.4%, while core PCE remained unchanged at 0.3%.

Investors mainly focused on the lack of any major upside surprise in core inflation, prompting a modest decline in the US Dollar. The US Dollar Index (DXY) falls 0.24% to 101.30, providing support for Dollar-denominated precious metals.

Other US data released on Thursday continue to point to a resilient economy. Durable Goods Orders declined 4.5% in May, in line with expectations, while Initial Jobless Claims fell to 215K, below forecasts of 225K. Meanwhile, both Personal Income and Personal Spending increased 0.7% in May, exceeding market expectations.

Against this backdrop, markets continue to expect the Fed to maintain a restrictive monetary policy stance, although the chance of a rate hike in September eased slightly following the inflation report. This environment may continue to limit Silver's recovery potential despite Thursday's rebound.

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

Ghiles Guezout

FXStreet

Ghiles Guezout is a Market Analyst with a strong background in stock market investments, trading, and cryptocurrencies. He combines fundamental and technical analysis skills to identify market opportunities.

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