After hitting an intra-day low of $36.30, silver prices (XAG/USD) recovered early session losses on Tuesday, back to near $36.70. The metal prices regained ground as investors were watching the progress of ongoing US-China trade talks in London, now in their second day. The White House indicated negotiations were “going well,” lifting market mood and diminishing immediate fears of a trade breakdown.
This geopolitical optimism may have decreased demand for safe-haven assets such as silver, but uncertainty, along with ongoing concerns about inflation, is keeping the metal supported. Trade peace usually diminishes silver’s appeal; however, a fragile global economic backdrop is favoring strategic buying, particularly in light of upcoming key inflation data due from the United States.
Trade talks and inflation expectations steer market mood
As US and Chinese delegations extend discussions into a second day, the US Dollar Index (DXY) remains flat around 99.70, showing traders are cautiously awaiting outcomes. Meanwhile, attention is shifting to Wednesday’s US Consumer Price Index (CPI) data for May, which is expected to reflect rising inflation. If the CPI prints higher than expected, it may prompt the Federal Reserve to maintain higher interest rates.
Traditionally, rising inflation increases silver’s appeal as a hedge against eroding currency value. However, higher Fed rates make non-yielding assets like silver less attractive. This dual-force dynamic, positive for silver in one sense and negative in another, has created short-term volatility in XAG/USD price action.
Investors are trying to price in both scenarios: a dovish Fed due to slowing economic growth or a hawkish Fed staying the course to fight inflation. In either case, silver continues to ride a wave of uncertainty-fueled interest.
Bullish momentum points to a $40.00 breakout possibility
From a technical perspective, silver has broken out through $34.87, a resistance level from October 2022 that now acts as support. The breakout above $34.87 implies a continued bullish structure, especially with a 20-day Exponential Moving Average (EMA) rising towards $34.34, which reinforces an ascending price trend.
The 14-day Relative Strength Index (RSI) is currently above 70.00, which indicates strong bullish momentum and possible overbought conditions, but this market structure suggests that prices will continue to rally. As long as momentum holds, silver could challenge psychological resistance at the $40.00 level, which has not been seen in years.
To the downside, we expect any pullback to find support at $34.87 or the 20-day EMA of $34.34. For as long as silver continues to maintain this bullish structure, it remains favorable to hold long silver positions, particularly for market participants targeting medium-term price appreciation due to inflation-related issues or geopolitical events.
The Silver outlook remains bullish, but data-driven risks loom
While the current silver price outlook indicates upside, much will depend on the CPI data and the Fed’s rate position this week. A strong inflation print could undermine bullish momentum if it solidifies or extends the case for high interest rate levels. Alternatively, any signs of softening inflation or dovish Fed comments could propel silver’s move towards $40.00.
Investors should pay attention to macroeconomic policy updates, as well as updates on geopolitical negotiations. Until then, silver appears well-positioned to capitalize on its safe-haven appeal and technical momentum, particularly as global uncertainty remains present..
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