Silver Price Forecast: XAG/USD holds above $29.00 on Fed rate cut expectations

• Silver prices could extend their winning streak as recent inflation increases the likelihood of Fed rate cuts.
• The US PCE price index rose 2.6% year-over-year in May, up from 2.7% in April.
• Silver could limit its upside due to demand uncertainties in China, the largest consumer of the grey metal.

The price of silver (XAG/USD) remains stable with a positive outlook, and could extend its winning streak for the third consecutive day. The XAG/USD pair is trading around $29.10 per troy ounce during early European hours on Monday. The non-yielding asset gains ground as investors assess the outlook for the Federal Reserve’s (Fed) monetary policy amid signs of cooling US inflation.

On Friday, the US Bureau of Economic Analysis reported that US inflation had fallen to its lowest annual rate in more than three years. The US personal consumption expenditure (PCE) price index rose 2.6% year-on-year in May, up from 2.7% in April, meeting market expectations. Meanwhile, core PCE inflation also rose 2.6% year-on-year, up from 2.8% in April, in line with estimates.

On Friday, Federal Reserve Bank of San Francisco President Mary Daly stated that while monetary policy is proving effective, it is still too early to determine when it will be appropriate to lower interest rates. Daly commented, “If inflation remains persistent or declines slowly, rates would need to be higher for longer,” according to Reuters.

Demand uncertainties in China, the largest consumer of silver, also pressured prices after an official report indicated a second consecutive month of manufacturing slowdown in June. China’s National Bureau of Statistics (NBS) reported that the manufacturing PMI remained at 49.5 in June, consistent with market forecasts and marking the fourth instance of contraction.

In contrast, a private survey indicated the fastest growth in the manufacturing sector in three years. The Caixin manufacturing PMI for China rose to 51.8 in June, defying expectations for a fall to 51.2 from 51.7 in May.