Silver Price Forecast: XAG/USD declines sharply from $31.50 amid caution ahead of US NFP

• Silver price falls vertically to $30.50 after steady PBoC’s Gold reserves data.
• Investors should brace for more volatility ahead of the US NFP report for May.
• Growing speculation for Fed rate cuts in September has limited the US Dollar’s upside.

Silver price (XAG/USD) drops sharply to $30.50 in Friday’s European session. The white metal weakens due to multiple headwinds such as caution among investors ahead of the United States (US) Nonfarm Payrolls (NFP) data for May and unchanged China’s Gold reserves by May end from April.

The US NFP report will indicate labor market’s health of world’s largest nation, which will influence the Federal Reserve’s (Fed) interest rate outlook ahead of the policy meeting on Wednesday. According to the estimates, US employers added 185K payrolls, increased from 175K in April. Average Hourly Earnings, which is a measure of wage inflation grew by 0.3% in month from the 0.2% pace recorded for April. Annually, the wage inflation measure is estimated to have grown steadily by 3.9%.

Signs of strengthening labor market conditions would force traders to pare bets supporting rate cuts by the Fed in September, while soft figures will do the opposite.

The US Dollar Index (DXY) remains sideways around the crucial support of 104.00. This week, the USD Index remains on the backfoot as weak employment-oriented economic indicators boost expectations for Fed rate cuts in September.

Meanwhile, non-yielding assets have also come under pressure as an 18-month-long Gold buying spell by the People’s Bank of China (PBoC) appears to be concluded. The PBoC gold reserves by May end were steady at 72.80 million fine troy oz as seen in April’s report. High investment in non-yielding assets is considered optimal amid high inflation and economic uncertainty.

Silver technical analysis

Silver price declines after facing immense selling pressure above the 61.8% Fibonacci retracement (plotted from May 29 high at $32.30 to June 4 low near $29.40) at $31.20. Silver’s near-term outlook appears to be uncertain as spot prices have dropped below the 50-period Exponential Moving Average (EMA), which trades around $30.70.

The 14-period Relative Strength Index (RSI) has slipped below 40.00. A sustained move below the same will push the momentum towards the downside.

Silver hourly chart