Silver regains ground above $64 as Fed rate hike bets fade

• Silver gains 0.37% on Friday and returns to around $64.70 despite the recent profit-taking.
• Slowing US inflation reduces expectations of interest rate hikes, a supportive factor for non-yielding precious metals.
• Tensions surrounding the Strait of Hormuz keep inflation risks elevated, while markets await US Retail Sales data.

Silver (XAG/USD) gains 0.37% on Friday and trades around $64.70 at the time of writing, erasing part of its recent correction. The precious metal benefits from easing expectations of monetary tightening in the United States (US), although persistent tensions in the Middle East continue to fuel concerns about energy prices and limit investor optimism.

The latest US inflation data reinforce the view that price pressures are beginning to ease. The Producer Price Index (PPI) slowed to 4.7% YoY, while the Core PPI came in at 4.2%. These figures, combined with the Consumer Price Index (CPI) data released on Wednesday, are helping reduce expectations of further monetary tightening by the Federal Reserve (Fed).

According to the CME FedWatch tool, markets now see around a 35% chance of an interest rate hike at the September meeting, down from 40% immediately after the PPI release and from a significantly higher level at the end of July. This shift supports Silver, as lower interest rates reduce the opportunity cost of holding non-yielding assets.

Fed officials nevertheless remain divided. Chicago Fed President Austan Goolsbee believes that some of the recent price pressures stem from temporary factors, particularly tariffs and energy, arguing in favor of a patient approach. In contrast, Cleveland Fed President Beth Hammack considers that progress on inflation remains insufficient and that further rate hikes may be necessary to ensure price stability.

The geopolitical backdrop also remains a key driver for XAG/USD. Negotiations aimed at restoring traffic through the Strait of Hormuz remain stalled, while traffic continues to be very limited through this key waterway and the Bab el-Mandeb Strait. Disruptions to energy supplies are keeping Oil prices elevated and could reignite inflationary pressures, complicating the Fed's task.

Attention now turns to US July Retail Sales, due later on Friday. Following recent signs of slowing inflation and weakness in the labor market, a weaker-than-expected reading could reinforce expectations of a more cautious Fed and provide further support to Silver. Conversely, resilient US consumer spending could revive speculation that interest rates will remain elevated for longer.

XAG/USD technical analysis

In the one-hour chart, XAG/USD trades at $64.67, maintaining a capped tone as it holds beneath the 100-hour simple moving average (SMA) at $65.00 and the downward resistance trend line coming in near $65.15. The pair remains above the 200-hour SMA at $63.09, which hints at an underlying broader uptrend, but the current location between these moving averages favors near-term consolidation under resistance. The Relative Strength Index (RSI) at 52 suggests mildly positive momentum, yet this does little more than temper selling pressure while overhead levels continue to restrain the upside.

On the topside, immediate resistance is clustered around the 100-hour SMA at $65.00 and the trend-line barrier near $65.15, with a more distant horizontal cap at $66.80 likely to attract sellers on any stronger rebound. On the downside, initial demand is expected near the 200-hour SMA at $63.09, closely followed by the horizontal support at $63.00, where a break would open the door to a deeper correction and weaken the broader constructive backdrop for silver prices.

(The technical analysis of this story was written with the help of an AI tool. Know more.)