Key Takeaways:
- Silver prices have risen over 1.70% this month due to expectations of a rate cut by the Federal Reserve.
- Geopolitical tensions in the Middle East are driving safe-haven demand for precious metals like silver.
- Focus is now on the U.S. inflation data and its potential impact on silver prices.
Monthly Gains Driven by Rate Cut Expectations
Silver prices have seen a significant increase of over 1.70% this month, mainly driven by traders’ expectations of a dovish shift from the Federal Reserve. The CME FedWatch Tool is indicating a 67% probability of a 25-basis-point rate cut next month, with a 33% likelihood of a more aggressive 50-basis-point reduction. Lower interest rates tend to boost the attractiveness of non-yielding assets like silver by reducing the opportunity cost of holding such investments.
Geopolitical Uncertainty and Safe-Haven Demand
Ongoing conflicts in the Middle East, especially between Israel and Hamas, are contributing to geopolitical uncertainty and driving safe-haven demand for precious metals. With no significant progress in ceasefire talks, silver continues to be sought after as a store of value. Analysts are predicting that the combination of safe-haven demand and potential central bank gold purchases could propel silver prices towards the $32 to $35 range by the end of the year.
Focus on U.S. Inflation Data
Market participants are now shifting their focus to the U.S. Personal Consumption Expenditures (PCE) index, the Federal Reserve’s preferred measure of inflation, scheduled to be released today. A softer-than-expected reading could reinforce expectations of a dovish Fed, leading to lower Treasury yields and a weaker dollar, which would be positive for silver. Investors are also keeping an eye on the Chicago Purchasing Managers’ Index and the final reading of consumer sentiment for August for further insights into the economic outlook.
Short-Term Market Outlook
Given the current market environment, silver is expected to experience increased volatility around the $30 level. The impact of the upcoming economic data could be significant, as traders are already pricing in a rate cut at the Fed’s September 18 meeting. A strong inflation report could diminish rate cut expectations and weigh on silver prices, while a weaker report could trigger a rally. Breaking decisively above $30 could set the stage for silver to test the $32 to $35 range by the year’s end.