Silver Price Forecast: XAG/USD tumbles below $66 as US Dollar recovers ahead of US PPI data

The price of silver (XAG/USD) dropped 2.3% to trade near $65.80 during European trading hours on Thursday. This decline was driven by a slight positive movement in the US Dollar (USD), as investors awaited the release of the United States Producer Price Index (PPI) for August at 12:30 GMT. The US Dollar Index (DXY) was marginally higher at around 99.86, following a lackluster performance in the Asian trading session.

Analysts noted that the rising US Dollar made silver an unfavorable bet in terms of risk-reward. The US headline PPI increased at a faster pace of 5.3% year-over-year (YoY) compared to 4.7% in July. The core PPI, excluding volatile food and energy items, also showed an upward trend, reaching 4.6% YoY from the previous reading of 4.2%.

The upcoming US Consumer Price Index (CPI) data for August on Friday will likely have a significant impact on the Federal Reserve's (Fed) interest rate expectations for the September policy meeting. Commerzbank analysts pointed out that recent repricing along the yield curve has coincided with a notable shift in policy expectations, with Fed funds futures markets now pricing a 60% probability of a 25 basis points (bps) increase at the upcoming meeting.

They believe that the August CPI data will be a crucial input, potentially determining whether the Fed will hike rates again or maintain its pause. XAG/USD is currently trading at $65.80, showing a slight bullish bias as it remains just above the 20-day exponential moving average (EMA) at $65.88. The Relative Strength Index (RSI) at 52 indicates that the upward momentum is tentative rather than impulsive.

The August 19 low at $62.19 is considered the key support level, while the September 9 high at $68.33 poses the major hurdle. Silver, a precious metal with various industrial and investment uses, tends to follow the movements of gold. A high Gold/Silver ratio may suggest that silver is undervalued, while a low ratio could indicate that gold is undervalued relative to silver.