Silver (XAG) Forecast: Focus on inflation data as silver flirts with the critical $30 mark

Market sentiment

Silver recently hit a two-month high of $30.19 on August 26. However, uncertainty over the Fed's actions and concerns about weak demand from China have made traders cautious. The market appears to be looking for a catalyst to push silver above the significant $30 threshold.

Fed stance and interest rate cut expectations

Recent comments by Fed Chairman Jerome Powell that “the time has come for a policy adjustment” have increased expectations of a rate cut at the central bank's next meeting. According to the CME FedWatch tool, market participants are pricing in a 66 percent probability of a 25 basis point cut and a 34 percent probability of a 50 basis point cut in September.

Economic indicators

Investors are eagerly awaiting the release of Friday's U.S. personal consumption expenditures (PCE) data, the Fed's preferred inflation indicator. This report, along with the upcoming U.S. GDP estimate, will be crucial in assessing the health of the world's largest economy and may influence the Fed's decision.

Dollar performance

The US dollar index hovered near a 13-month low at 100.61, representing a 3.4% decline for the month. This weakness in the dollar usually supports precious metal prices. However, some analysts believe that the dollar's downward momentum may be fading, with support at around 100.18.

Market forecast

Given the current market conditions, silver prices could see short-term volatility as traders digest upcoming economic data. The precious metal's performance will likely be influenced by the strength of Friday's PCE report and any surprises in the GDP estimate. A weaker-than-expected inflation reading could bolster the case for a more aggressive rate cut and potentially support silver prices. However, ongoing concerns about Chinese demand could limit upside potential. Traders should remain alert and watch for signs of a bullish breakout above the $30.00 level, which could signal a more sustainable uptrend.

Technical Analysis