Silver prices (XAG/USD) fell sharply by 2.5% to near $56.50 during the Asian trading session on Friday, marking a fresh down leg as investors react to firm expectations of US Federal Reserve rate hikes [1]. The decline follows months of pressure on the white metal, driven by elevated energy prices due to Middle East conflict, which have pushed US headline and core inflation higher. The latest US Consumer Price Index (CPI) report showed headline inflation accelerating to 4.2% year-on-year (YoY) in May, the highest since April 2023, while core inflation rose to 2.9% YoY [1]. Additionally, the US core Personal Consumption Expenditure Price Index (PCE), the Fed’s preferred inflation gauge, increased to 3.4% YoY in May, up from 3.3% in April [1].
New York Fed Bank President John Williams commented that monetary policy is "well-positioned" given the high inflationary pressures, and he expects inflation to moderate to around 3.5% this year, pushing back hopes of returning to the 2% target before 2028 [1]. This outlook has significantly shifted market expectations, with the CME FedWatch tool indicating an 81.7% probability of at least one Fed rate hike this year, a sharp reversal from earlier expectations of two rate cuts prior to the Middle East conflict [1].
Technical analysis reveals a clear bearish bias for XAG/USD, with prices holding well below the 20-period exponential moving average (EMA) at $65.82. The Relative Strength Index (RSI) at 27.45 is in oversold territory, suggesting that while downside pressure dominates, the pace of decline may slow, allowing for intermittent corrective bounces [1]. If the price extends its decline below the June 24 low at $55.63, it could slide towards the November 28 low at $53.35, and a breakdown below this level would expose silver to the psychological support at $50.00. On the upside, resistance is seen at the March 23 low of $61.01 and the 20-day EMA at $65.82 [1].
Market participants are closely watching inflation data and Fed commentary for further cues. The persistent bearish momentum and oversold technical readings suggest that while silver may see brief corrective rallies, the overall outlook remains negative unless inflation moderates or Fed policy expectations shift [1].
CONCLUSION
Silver prices have come under significant pressure due to rising US inflation and firm expectations of Fed rate hikes, resulting in a sharp decline below $56.50. Technical indicators point to continued downside risk, with key support levels in focus. Unless inflation eases or Fed policy expectations change, the bearish outlook for silver is likely to persist.