Silver Price Forecast: XAG/USD moves below $31.50 due to market caution

• Silver price edges lower as investors adopt caution ahead of looming US PCE Inflation.
• The hawkish sentiment surrounding the Fed’s stance on maintaining higher interest rates weakens non-yielding assets like Silver.
• The escalated situation in the Middle East could provide some support for safe-haven assets like Silver.

Silver prices edged lower to near $31.40 per troy ounce during the early European session on Tuesday. The grey metal is struggling due to market caution ahead of the Federal Reserve's preferred measure of inflation, the Core Personal Consumption Expenditures (PCE) Price Index data, which is due on Friday. This data is crucial for assessing future US monetary policy. The US Core PCE is expected to show an increase of 0.3% month-over-month and 2.8% year-over-year in April.

Non-yielding assets like Silver are under pressure due to the hawkish sentiment surrounding the US Federal Reserve (Fed), which is committed to maintaining higher interest rates for an extended period. Last week, Fed officials tempered expectations for rate cuts, cautioning that the central bank still needs more evidence that inflation will eventually decline to its 2% annual target.

However, the decline in the US Dollar (USD) could help Silver attract buyers, as it becomes cheaper for investors and consumers using other currencies. This increased affordability can lead to higher demand for silver from overseas buyers, driving up its price.

Additionally, escalated geopolitical tensions in the Middle East could provide some support to the safe-haven Silver. Reuters reported on Sunday that an Israeli strike in the Gazan city of Rafah caused a fire that killed 45 people, triggering further outcry from international delegations and sustaining geopolitical risks that favor higher crude oil prices. Such geopolitical uncertainties often lead investors to seek safe-haven assets like Silver, which can further boost its price.