Silver Price Forecast: XAG/USD clings to gains above $28 on Fed rate cut optimism

• Silver price holds gains above $28.00 amid firm speculation for Fed rate cuts.
• Steadily cooling US labor market conditions keep the US Dollar’s upside limited.
• Investors shift focus to the US Inflation data.

Silver price (XAG/USD) holds onto gains above the crucial figure of $28.00 in Friday’s New York session. The white metal remains firm as investors’ confidence in the Federal Reserve (Fed) starting to reduce interest rates from the September meeting has strengthened.

The CME FedWatch tool shows that traders see a 71% chance that interest rates will decline from their current levels in September, which are higher than 66% recorded a month ago. The speculation for the Fed pivoting to rate cuts has strengthened as investors lose conviction over United States labor market strength.

The US Department of Labor showed that individuals claiming jobless benefits for the first time at 231K for the week ending May 3 were higher in more than eight months. Also, recent official labor market data showed that job growth was the slowest in six months. The overall data suggests that the US labor market is struggling to bear the consequences of the Fed’s restrictive monetary policy framework.

The situation is favorable for non-yielding assets such as Silver but weighs on the US Dollar and bond yields. In spite of that the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, holds above the 105.00 support. 10-year US Treasury yields jump to 4.49%.

Next week, US economic calendar will be data-packed as the Producer Price Index (PPI) and Consumer Price Index (CPI), and the Retail Sales data are lined-up for release. The major event will be the consumer price inflation data, which will influence market expectations for Fed rate cuts.

Silver technical analysis

Silver price recovers sharply after discovering buying interest near the horizontal support plotted from 14 April 2023 high around $26.09 on a daily timeframe. The above-mentioned support was earlier a major resistance for the Silver price bulls. The near-term outlook of Silver has improved as it returns above the 20-period Exponential Moving Average (EMA), which trades around $27.30.

The 14-period Relative Strength Index (RSI) shifts into the bullish range of 60.00-80.00, suggesting that a bullish momentum has been triggered.

Silver daily chart