Silver Price Analysis: XAG/USD rallies into mid-$22.00s ahead of key US Core PCE data

• Silver is on the front foot pre-US Core PCE data as the buck and US yields hover at monthly lows.
• Upcoming inflation data at 1230GMT will be viewed in the context of how it impacts Fed tightening expectations.
• A downside surprise could lift silver towards $23.00 while an upside surprise could send it back under $22.00.

Spot silver (XAG/USD) prices have rallied to nearly three-week highs in the mid-$22.00s per troy ounce on Friday ahead of the release of key US Core PCE inflation figures for April, boosted as the US dollar and US bond yields probe monthly lows. A weaker buck helps USD-denominated commodities attract demand from foreign investors, while a fall in bond yields represents a lower “opportunity cost” of holding non-yielding assets (such as precious metals).

At current levels in the $22.30s, XAG/USD is trading higher by more than 1.5% on Friday, thus extending its weekly gains to about 2.8%, and its gains from earlier monthly lows to closer to 9.0%. For reference, since spot-silver posted multi-month lows in the mid-$20.00s on 13 May, the DXY has dropped about 3% and the US 10-year by about 17bps.

Upcoming US Core PCE inflation data at 1230GMT will, as usual, be closely scrutinised and could trigger a choppy market reaction. Analysts increasingly believe that inflation in the US might have now peaked, and might well ease back over the remainder of the year, thus allowing the Fed to pause its rate hikes once it gets back to neutral (around 2.5%). The upcoming data will thus be viewed in the context of whether it supports or pushes back against this narrative.

The MoM price gain according to the Core PCE Price Index will be the most closely watched number. If prints in line with consensus forecasts and last month’s number at 0.3%, or if it comes in lower, recent USD weakness/US yield downside might well extend. In this scenario, XAG/USD might be in with a shot of reclaiming a $23 handle. If it surprises to the upside, a quick drop back into the $21.00s might be on the cards.