(Kitco News) – Silver prices are stabilizing following the sharp slide across precious metals on Friday, but China’s pullback on sovereign gold purchases could mean stagnation and further declines for the grey metal, according to analyst James Hyerczyk at FX Empire.
“Silver prices stabilized on Monday after experiencing the steepest decline in over three years on Friday,” Hyerczyk wrote. “This correction came as disappointing news from China and the U.S. curbed speculator enthusiasm, particularly those banking on Chinese bullion demand and an anticipated interest rate cut from the Federal Reserve.”
He said that Friday’s plummeting silver prices were driven by a double whammy of data from Asia and the United States. “This decline was triggered by a stronger-than-expected U.S. jobs report, which reduced the likelihood of a Fed rate cut in September,” he said. “Additionally, the People’s Bank of China (PBOC) paused its bullion purchases after 18 months, disappointing investors who had bet on continued Chinese demand for gold.”
Hyerczyk said that the PBOC has been exerting considerable influence on bullion prices of late, but their buying patterns have been inconsistent.
“Historically, the bank’s buying phases are followed by long breaks, and without resumed purchases of gold, silver prices might remain stagnant,” he said. “Market sentiment was further jolted by Friday’s dramatic move, with expectations of similar volatility this week being low unless there are major surprises in upcoming economic data, particularly the Consumer Price Index (CPI) report and the Federal Reserve’s policy decision.”
All eyes are now on the CPI release tomorrow morning, with the Fed’s interest rate decision and new projections coming in the afternoon. “Analysts predict May’s CPI will show cooling headline inflation, though core inflation might remain high, influencing the Fed’s decision-making process,” he said. “The Cleveland Federal Reserve estimates headline inflation at 0.08% and core inflation at 0.3% for May, reflecting cooling energy prices but persistent core pressures.”
Hyerczyk noted that expectations for a Fed rate cut in September dropped from 70% to around 50% following the release of the U.S. employment data, and nobody is expecting a change to the benchmark rate at tomorrow’s meeting.
“Policymakers are closely monitoring shelter and services prices, as these are significant inflation drivers,” he wrote. “The recent robust jobs report suggests the Fed will scrutinize inflation data more intensely before adjusting rates. While May’s CPI is likely to show moderated inflation, the path to the Fed’s 2% target remains protracted.”
Hyerczyk said that in the near term, he expects silver prices to remain under pressure. “With the Fed likely holding off on rate cuts and China’s demand uncertain, the market outlook leans bearish,” he said. “Any positive surprise in the CPI data could, however, shift sentiment temporarily. Traders should stay alert to economic releases and Fed communications this week for clearer market direction.”
Turning to the technical picture, Hyerczyk said that while silver prices have stabilized and have trended upward, the analysis doesn’t look bullish.
“XAG/USD prices are edging higher on Monday, but the market remains vulnerable to further downside pressure with the 50-day moving average at $28.77 the next target,” he said.
“The 50-day MA has been controlling the intermediate uptrend since March 1 so a sustained move under this indicator could cause some significant damage to the chart with the 200-day moving average at $24.66, a potential downside target,” Hyerczyk concluded.
After declining precipitously from the daily high of $29.808 shortly after 6 pm EDT to a session low of $29.032 at 10:30 pm, spot silver has managed to hold above $29.100 since, last trading at $29.255 at the time of writing for a loss of 1.65% on the session.
