- Silver prices remain below $28.00 as expectations of a sharp Fed rate cut fade.
- Headline and core inflation in the US slowed by a tenth to 2.9% and 3.2% respectively in July.
- The next trigger for the silver price will be the monthly US retail sales figures scheduled for Thursday.
Silver price (XAG/USD) is trading subdued at $28.00 in Wednesday’s New York session. The white metal is under pressure as market expectations regarding the Federal Reserve’s (Fed) announcement of a major interest rate cut in September have faded following the release of the US Consumer Price Index (CPI) for July.
According to the CME FedWatch tool, the probability of a 50 basis point (bp) rate cut has fallen from 54% in September to 41.5% following the release of the inflation report. However, the data gives a clear signal that the Fed will cut rates next month.
The consumer price index report showed that annual headline and core inflation, which excludes volatile items such as food and energy, fell by a tenth to 2.9% and 3.2% respectively. The decline in price pressures was broadly in line with market consensus. Headline and core inflation also rose 0.2% month-on-month, as expected.
Meanwhile, the US dollar (USD) continued to fall as inflation data boosted investor confidence that price pressures are on track to return to the desired 2% level. The US dollar index (DXY), which tracks the greenback’s value against six major currencies, recorded a new weekly low of 103.30.
The next trigger for silver prices will be the monthly US retail sales for July, which will be released on Thursday.
Technical forecast for silver
Silver price continues to remain below the 20-day Exponential Moving Average (EMA) at $28.20, indicating that the short-term trend is bearish. While the 200-day EMA at $26.90 continues to provide support to the silver price bulls.
The biggest buffer for the silver price will be the horizontal support marked at the May 5 high of $26.14.
The 14-day Relative Strength Index (RSI) is around 40.00. A clear break below this level will trigger bearish momentum.
Silver daily chart
Frequently asked questions about silver
Silver is a precious metal that is widely traded among investors. It has historically been used as a store of value and a medium of exchange. Although it is less popular than gold, traders can turn to silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge in times of high inflation. Investors can buy physical silver in coins or bars, or trade it through instruments such as exchange-traded funds that track its price on international markets.
The price of silver can change based on a variety of factors. Geopolitical instability or fear of a severe recession can drive up the price of silver due to its safe-haven status, although to a lesser extent than gold. As a non-yielding investment, silver tends to rise when interest rates are lower. Its movements also depend on how the U.S. dollar (USD) behaves, as the asset is valued in dollars (XAG/USD). A strong dollar tends to keep the price of silver in check, while a weaker dollar is likely to drive prices higher. Other factors such as investment demand, mining supply—silver is much more common than gold—and recycling rates can also affect prices.
Silver is widely used in industry, especially in areas such as electronics or solar energy, because it has one of the highest electrical conductivities of any metal – higher than copper and gold. A surge in demand can raise prices, while a decline tends to lower them. The dynamics of the US, Chinese and Indian economies can also contribute to price fluctuations: in the US and especially in China, silver is used in various processes in major industries; in India, consumer demand for the precious metal for jewelry also plays an important role in pricing.
Silver prices tend to follow the movements of gold prices. When gold prices rise, silver usually follows as well, as they have a similar status as a safe-haven asset. The gold/silver ratio, which indicates the number of ounces of silver required to equal the value of one ounce of gold, can help determine the relative value of both metals. Some investors consider a high ratio to indicate that silver is undervalued or gold is overvalued. On the contrary, a low ratio could indicate that gold is undervalued compared to silver.
