Silver price forecast as the market digests US inflation data

Silver price has extended its previous gains following the easing of Treasury yields. Its status as a hedge against inflation and safe haven continues to fuel its rally.

US inflation outlook

On Tuesday, the benchmark 10-year US bond yields rose to 2.83% as a reaction to the higher-than-expected CPI numbers. Notably, that’s its highest level since December 2018.

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However, it eased to an intraday low of 2.67%; boosting the precious metal. Even so, the yields are on a rebound at 2.78% as at the time of writing. Rising yields increase the opportunity cost of holding the non-yielding asset.

In addition to the soaring Treasury yields, a strong US dollar has placed a lid on silver price’s gains. Earlier on Wednesday, the dollar index hit a level last seen in May 2020 at $100.59. The greenback has been in the green for 10 consecutive sessions amid prospects of interest rate hikes. Amid the Fed’s hawkish stance, markets are pricing in a 50 basis points rate hike in its May meeting and several such increases in the course of the year.

Despite expectations of the Fed’s aggressive move towards easing inflation, the Russia-Ukraine war and heightened inflationary pressures remain key bullish drivers for silver price. Data released by the Labour Department on Tuesday indicated that consumer prices rose by 8.5% in March on a year-on-year basis. The reading was higher than the predicted 8.4%.

In the ensuing sessions, the precious metal will likely rally further following the retail sales data scheduled for release on Thursday. With the soaring consumer prices, the figures will likely indicate a reduction in consumers’ purchasing power. In February, retail sales dropped from January’s adjusted reading of 4.9% to 0.3%.

Silver price technical analysis

Silver price is in the green for the sixth consecutive session. Notably, it has been holding steady above the crucial resistance-turn-support zone of 24.00 since the Russia-Ukraine war began close ton seven weeks ago.

As at the time of writing, it was at 25.49. Earlier on Wednesday, the bulls retested Tuesday’s intraday high of 25.59 before pulling back. On a daily chart, it is trading above the 25 and 50-day exponential moving averages.

In the short term, I expect silver price to continue finding support close to the psychological zone of 25.00. In particular, 24.89 will be a level to watch out for.

On the upside, the resistance level of 25.50 will remain a crucial one. With additional bullish momentum, which would emerge from its status as a hedge against inflation and safe haven, the bulls may have an opportunity to push it further to 25.83.