Silver Price Forecast: XAG/USD plunges from four-week highs after hot US CPI

• Silver prices tumbled on higher-than-estimated August inflation figures, cementing the case for a third-straight Fed 75 bps rate hike.
• US CPI headline unexpectedly rose by 8.3 YoY, higher than 8.1% estimates.
• The CME FedWatch Tool has fully priced in a 75 bps rate hike.

Silver price drops from weekly highs near the $20.00 figure due to high US inflation data reported by the Department of Labor, exceeding analysts’ estimates, with most expecting a dip that could deter the US Fed from hiking interest rates.

XAG/USD opened around the $19.70s area and climbed towards its daily high at $19,94, ahead of the release of US inflation. However, once the headline crossed newswires, the pair tumbled toward the daily low at $19,34 before settling around the current spot price. XAG/USD is trading at $19.52, below its opening price.

XAG/USD tumbled on an unexpected rise in US inflation

Before Wall Street opened, the US Labor Department released that August inflation in the US i, hit the 8.3% YoY mark, lower than the 8.5% in the previous month. Even though it’s a positive number, economists were expecting a lower reading, spurred by lower energy prices, with WTI oil prices peaking at around $129.43 around March of 2022.

Inflation, excluding volatile items like food and energy, continued its uptrend, from 5.9% YoY in July to 6.3%, mainly caused by higher rent costs, further cementing the case for a large rate hike by the US Federal Reserve.

Elsewhere, the US Dollar Index, a gauge of the greenback’s value vs. six peers,  is recovering a lot of ground, after tumbling towards a daily low at 107.660, edges up almost 1% at 109.375, a headwind for the precious metals complex.

The US 10-year T-bond yield edged up seven bps, at 3.431%, while US 10-year Treasury Inflation-Protected Securities yield cleared the 1% threshold for the first time since January 2019.

The US Federal Reserve entered its blackout period until the September 21 monetary policy decision. Market participants have fully priced in a 75 bps rate hike, according to the CME FedWatch Tools, which would see the Federal Funds Rate (FFR) reach the 3.25% threshold.

What to watch

The US economic docket will feature prices paid by producers on Wednesday, followed by the New York Fed PMI, the Philadelphia Fed PMI, Initial Jobless Claims, and Retail Sales on Thursday. On Friday, the University of Michigan (UoM) will release the US Consumer Confidence ahead of next’s weeks FOMC monetary policy decision.

Silver Key Technical Levels