Market Overview
Silver prices (XAG/USD) continued their decline for the second consecutive day on Wednesday, trading around $27.75 and reaching an intra-day low of $27.55.
This drop is mainly due to the strengthened US dollar, which gained despite softer U.S. producer inflation data, fueling expectations for more aggressive interest rate cuts.
Positive sentiment in equity markets has further reduced demand for the safe-haven metal. The decline is also driven by market repositioning ahead of the critical US consumer inflation report due later today.
However, silver’s downside is likely limited by ongoing concerns over potential geopolitical escalations in the Middle East.
Silver Prices Could Rise on Fed Rate Cut Hopes Amid Cooling Inflation Data
Expectations are growing that the Federal Reserve will cut interest rates more deeply due to cooling inflation. This is positive for silver, as lower rates often boost the appeal of non-yielding assets like precious metals. Silver stands to benefit as the US dollar weakens and Treasury bond yields drop.
Atlanta Fed President Raphael Bostic indicated he might support a rate cut by year-end if data confirms this trend. All eyes are now on the US Consumer Price Index (CPI) report. If the CPI shows weaker inflation, the likelihood of a 50-basis point rate cut in September could increase, likely driving silver prices higher.
The US Producer Price Index (PPI) rose by 2.2% annually in July, down from 2.7% in June, while core PPI remained flat, signaling cooling inflation. This data suggests that the Federal Reserve may soon begin cutting rates, leading to lower US Treasury bond yields.
However, despite the positive outlook for Fed rate cuts, silver prices are losing traction. This could be due to market optimism, stronger equity performance, or uncertainties surrounding upcoming CPI data, which may limit silver’s gains.