Silver Price Forecast: XAG/USD marches firmly towards $22.00 post-hot US inflation, weak consumer sentiment

• Silver climbs on Friday but is still down in the week by 0.24%.
• US inflation rebounded from April’s 8.3% dip and rose strongly.
• The UoM consumer sentiment is at a 50-year low; stagflation looms?

Silver (XAG/USD) advances after seesawing earlier in the day, reaching a three-week low at $21.27, but staged a recovery after the University of Michigan Consumer Sentiment slumped the most in 5 decades. At the time of writing, XAG/USD is trading at $21.82, erasing earlier losses and now gaining 0.57%.

In the meantime, the US Dollar is rallying to fresh three-week highs, at 104.174, gaining 1.96%. At the same time, the US 10-year Treasury yield is rallying to new four-week highs at 3.14%, up by twenty basis points.

US consumer sentiment plunges, and US inflation rose to 4-decades highs

US consumer sentiment plummeted the most in 5-decades, following an inflation report that in the previous two months before May reading fell though rebounded to 8.6% YoY.

The University of Michigan’s consumer sentiment dipped towards 50.2, from 58.4, the lowest slump in 52 years. Joanne Hsu, director of the survey, said, “Throughout the survey, consumers signaled strong concerns that inflation will continue to erode their incomes, and the factors they cited are unlikely to abate soon.”

 “While consumer spending has remained robust so far, the broad deterioration of sentiment may lead them to cut back on spending and thereby slow down economic growth,” Hsu said.

Earlier in the day, the Department of Labor reported that the Consumer Price Index (CPI) for May rose by 8.6%, higher than the 8.3% expected, data showed on Friday. The so-called core CPI, which excludes food and energy prices, increased by 6% YoY, also above expectations.

That further reinforces the necessity for Fed’s aggressive action if they are going to tackle inflation down.

Commerzbank analysts, in a note, expressed that the Federal Reserve is behind the curve. They added, “It is becoming increasingly clear that the Fed was too late in raising interest rates. Everything therefore points to further significant rate hikes. We expect interest rate hikes of 50 basis points at each of the next three Fed meetings. At the end of the year, the key interest rate should stand at 3.00%, and at 3.50% in spring 2023. But even with this forecast, the risks are now clearly on the side of even stronger hikes.”

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