Silver May Consolidate After 12% Weekly Rally, While Softer US Inflation and Lower Rate-Hike Expectations Keep the Uptrend Intact

Silver prices could extend their recent rally towards $68 per ounce in the near term as expectations of further US Federal Reserve rate hikes ease, the US dollar remains under pressure and investor interest through silver ETFs improves.

According to Praveen Singh, Head of Commodities at Mirae Asset Sharekhan, spot silver is likely to consolidate after its sharp recent gains but could maintain an upward bias.

Spot silver had climbed to $66.79 per ounce on August 11, its highest level since June 22, before profit booking pulled prices lower. At the time of the analysis on August 13, silver was trading at around $64.73 per ounce, down 0.90 per cent.

Singh expects traders to consider buying on dips, with $62.90 as the key stop-loss level and $68 as the near-term target.

Silver Rally Follows 12% Weekly Surge

Silver posted a remarkable 12 per cent gain last week, creating strong upward momentum across the precious-metals market.

The sharp rise has subsequently triggered some profit booking, which is normal following an aggressive move.

The key question for traders now is whether the metal can consolidate its gains and establish a higher base or whether the recent rally will lose momentum.

The analyst's view remains moderately bullish, with consolidation expected to be followed by a potential move towards $68.

Softer US Inflation Supports Silver

US inflation data has provided a supportive backdrop for precious metals.

July headline CPI eased to 3.4 per cent from 3.5 per cent in June, while core CPI declined to 2.5 per cent from 2.6 per cent.

Both headline and core inflation remained broadly in line with market expectations.

The moderation reduces pressure on the Federal Reserve to maintain an increasingly restrictive monetary policy.

For silver, lower expectations of aggressive rate hikes can be positive because falling interest-rate expectations generally reduce Treasury yields and the opportunity cost of holding non-yielding assets.

US PPI Also Shows Moderation

Producer inflation in the US also softened during July.

Headline PPI declined to 4.7 per cent year-on-year from 5.5 per cent in June, below the market forecast of 4.9 per cent.

Core PPI stood at 4.2 per cent.

On a monthly basis, core PPI increased 0.2 per cent, below the expected 0.3 per cent increase.

The moderation in producer inflation further supports the possibility of a less hawkish Federal Reserve.

Fed Rate-Hike Expectations Fall Sharply

One of the biggest catalysts for the recent silver move has been the changing outlook for US monetary policy.

According to the analysis, the probability of a Fed rate hike at the September FOMC meeting has fallen to 35 per cent, compared with 75 per cent a month earlier.

The probability of a rate increase by the end of the year has also declined from around 90 per cent to 70 per cent.

If expectations continue moving towards a more accommodative Fed, silver and other precious metals could receive additional support.

Dollar Weakness Adds Another Tailwind

The US Dollar Index was around 99.98 at the time of the analysis.

The index has declined approximately 1.8 per cent from its June 24 cycle high of 101.80.

A weaker US dollar generally supports dollar-denominated commodities because they become relatively more affordable for buyers using other currencies.

If the dollar continues to weaken alongside declining Treasury yields, the environment could remain favourable for silver.

Treasury Yields Move Lower

US Treasury yields have also softened.

The two-year yield declined to approximately 4.14 per cent, its lowest level since July 17, while the 10-year yield was around 4.64 per cent.

Lower yields can support precious metals because they reduce the relative attractiveness of interest-bearing assets.

The direction of US yields will therefore remain one of the most important short-term indicators for silver.

Geopolitical Uncertainty Adds Volatility

Geopolitical developments remain another important factor for commodity markets.

Uncertainty surrounding the situation involving the US, Iran and the Strait of Hormuz has resulted in significant volatility in crude oil prices.

Conflicting reports over the potential reopening of the Strait have contributed to sharp swings in energy markets.

At the time of the analysis, Brent crude futures were trading near $87.78 per barrel.

Any escalation in geopolitical tensions could increase demand for safe-haven assets, potentially benefiting silver along with gold.

Crude Oil Remains an Important Macro Indicator

Oil prices can influence silver indirectly through inflation and global growth expectations.

Higher crude prices can increase inflationary pressure and complicate monetary policy decisions.

At the same time, sustained high energy costs can weigh on economic activity.

This creates a complex environment for precious metals, where inflation concerns can support demand while growth concerns can limit industrial consumption.

IEA Raises Near-Term Oil Deficit Forecast

The International Energy Agency has reportedly raised its third-quarter oil deficit forecast to 1.8 million barrels per day, compared with its previous estimate of 0.8 million barrels per day.

However, the agency expects the market to move towards a surplus of around 4.6 million barrels per day in 2027.

It also forecasts global oil demand to contract by approximately 1.6 million barrels per day in 2026.

These conflicting signals could keep commodity markets volatile in the months ahead.

Silver ETF Holdings Begin to Recover

Investment flows are another positive factor for silver.

Total known global silver ETF holdings have increased to approximately 797 million ounces, up around 2 per cent from the cycle low of 781 million ounces recorded on July 14.

The recovery indicates that investors have begun increasing exposure to silver again as expectations of a less hawkish Federal Reserve grow.

However, ETF holdings remain more than 7 per cent lower year-to-date, meaning the recent improvement has not yet completely reversed the earlier decline.

COMEX Inventories Remain Below Record Levels

Registered COMEX silver inventories stood at around 99 million ounces.

Although inventories have recovered from the April low of 75.71 million ounces, they remain more than 50 per cent below the record peak of 201 million ounces recorded last September.

The relatively low inventory level could become more important if physical and industrial demand accelerates.

However, inventory data alone does not confirm an immediate supply shortage.

LBMA Lease Rate Suggests No Immediate Supply Crunch

The one-month LBMA silver lease rate was around -0.16 per cent.

According to the analyst, the reading does not indicate an immediate physical supply concern.

The long-term average lease rate is around 0.3-0.6 per cent.

This suggests that the current silver rally is being driven more by macroeconomic and investment factors than by an acute shortage of physical metal.

China's Industrial Demand Remains Important

China is one of the most important markets for silver because of its large manufacturing and renewable-energy industries.

Chinese imports of silver-containing ores increased 62.5 per cent year-on-year in June to around 219,000 tonnes, according to the analysis.

The increase was linked to industrial demand, including the expansion of China's solar manufacturing capacity and power-grid infrastructure.

Solar Demand Could Support Silver Consumption

Silver is widely used in solar photovoltaic technology because of its high electrical conductivity.

The continued expansion of solar manufacturing therefore provides a structural source of industrial demand.

China's position as a major global solar manufacturing hub makes its silver consumption particularly important.

However, technological improvements that reduce silver usage per solar cell remain a long-term consideration for the market.

Silver Has a Dual Demand Profile

Unlike gold, silver has a significant industrial component to its demand.

Its two major demand drivers are:

Investment demand: ETFs, bars, coins and financial-market positioning.

Industrial demand: Solar panels, electronics, electrical infrastructure and other manufacturing applications.

This dual nature can create both opportunities and risks.

When monetary conditions favour precious metals and industrial demand remains strong, silver can outperform. Conversely, a slowdown in global manufacturing can offset investment demand.

Fundamental Picture Remains Mixed

Despite the bullish macroeconomic signals, silver's fundamentals are not entirely supportive.

Rising inventories in certain markets and the negative LBMA lease rate indicate that there is currently no clear evidence of an immediate physical supply shortage.

This is particularly important after the metal's sharp recent rally.

As a result, the next leg higher may depend increasingly on:

• Fed policy expectations
• US Treasury yields
• Dollar movements
• ETF flows
• Chinese industrial demand
• Geopolitical developments
• Technical momentum

$68 Emerges as the Key Near-Term Target

From a technical perspective, Singh sees the potential for silver to extend its rally towards $68 per ounce.

However, after the recent 12 per cent weekly increase, the analyst expects some consolidation.

The suggested trading strategy is to buy on dips rather than chase sharp upward moves.

The key levels are:

A sustained move above $68 could strengthen the bullish technical setup, while a break below $62.90 would weaken the current view.

What Could Push Silver Higher?

Several factors could potentially trigger another leg higher.

Lower Fed Rate Expectations

Further reduction in rate-hike expectations could support precious metals.

Falling Treasury Yields

Lower yields reduce the opportunity cost of holding silver.

Dollar Weakness

Continued depreciation of the dollar can support commodity prices.

Strong ETF Inflows

Renewed investment flows could strengthen demand for silver.

Geopolitical Escalation

Higher geopolitical risk could increase safe-haven demand.

Strong Industrial Demand

Solar, electronics and power-grid investment could provide structural demand.

What Could Trigger a Correction?

Silver's sharp recent rise also leaves the market vulnerable to profit booking.

Potential downside catalysts include:

• Stronger-than-expected US economic data
• Higher Treasury yields
• Dollar appreciation
• A hawkish Fed
• Weak ETF inflows
• Lower Chinese industrial demand
• Rising inventories
• Easing geopolitical tensions
• Profit booking after the sharp rally

A decisive break below the analyst's $62.90 risk level would be an important warning signal.

Upcoming US Data to Watch

The next set of US economic releases could influence silver's direction significantly.

Important data points include:

• July retail sales
• University of Michigan sentiment
• Inflation expectations
• TIC flows
• ADP employment data
• Import price index
• Housing starts
• Industrial production
• Philadelphia Fed business outlook
• Leading economic indicators

Any evidence of weakening economic activity could increase expectations of easier monetary policy and potentially support silver.

China Data Could Influence Industrial Demand

China's upcoming economic indicators will also be closely watched.

Investors will focus on:

• July industrial production
• July retail sales
• Property-market data

Stronger industrial activity could support silver consumption, while signs of a slowdown could weigh on the industrial component of demand.

Silver Versus Gold: Why the Distinction Matters

Silver and gold often move in the same direction when monetary conditions become supportive of precious metals.

However, silver's industrial exposure creates an additional source of volatility.

Gold tends to respond more directly to:

• Real yields
• Central-bank policy
• Dollar movements
• Safe-haven demand

Silver is influenced by those factors but is also heavily affected by:

• Solar demand
• Electronics manufacturing
• Global industrial activity
• Chinese consumption

Therefore, silver can potentially outperform gold during periods when both investment and industrial demand are strong.

Market Outlook

The outlook for silver remains positive with a near-term upward bias, although the metal may experience consolidation following its sharp 12 per cent weekly rally.

The macro backdrop remains supportive. Lower US inflation, falling Treasury yields, reduced expectations of Federal Reserve rate hikes and a relatively weaker dollar are all factors that can support precious-metal prices.

Investment flows are also showing early signs of improvement, with global silver ETF holdings recovering from their July low. Meanwhile, strong Chinese imports of silver-containing ores and continued expansion in solar manufacturing and power-grid infrastructure provide an important industrial-demand backdrop.

However, the fundamental picture is not without risks. Rising inventories in some markets and the negative one-month LBMA lease rate indicate that the market is not currently facing an obvious immediate physical shortage. This means that the next phase of the rally could remain heavily dependent on monetary-policy expectations, investment flows and technical momentum.

From a trading perspective, $68 is the key near-term upside target identified by Mirae Asset Sharekhan, while $62.90 represents the suggested risk-management level. The preferred strategy is to consider buying dips rather than chasing sharp rallies.

For investors, the medium-term silver story remains supported by its unique combination of precious-metal and industrial demand. If the Fed turns increasingly dovish, the dollar weakens further and ETF inflows continue to recover, silver could have room for another upward move.

Overall, silver remains structurally constructive, but the speed of the recent rally warrants caution. A sustained breakout above $68 could open the door to further gains, while a decisive break below $62.90 would weaken the bullish setup.