Silver: XAG/USD soars to near $23.35 on soft US PPI, escalating geopolitical tensions

NEW YORK (January 12) Silver price (XAG/USD) has rallied to near $23.35 as the United States Bureau of Labor Statistics (BLS) has reported a softer-than-anticipated Producer Price Index (PPI) report for December. The headline PPI contracts by 0.1% and core PPI remains stagnant for the second month in a row. Investors projected headline and core PPI rising by 0.1% and 0.2% respectively.

Producers at factory gates rose prices of goods and services at a slower pace of 1.0% against 1.3% as anticipated by investors. The core PPI decelerated sharply to 1.8% vs. consensus of 1.9% and the prior reading of 2.0%.

A soft PPI data has strengthened bets in favour of an interest rate cut decision by the Federal Reserve (Fed) in March. As per the CME Fedwatch tool, market participants see the likelihood of the Fed cutting interest rates by 25 basis points (bps) in March at 76%, which were earlier at 66%.

The market mood has turned risk-off as the US and UK military groups have launched airstrikes on Iran-backed Houthi rebels amid retaliation for attacks at merchant vessels shipping from Red Sea. This has escalated risks of Iran entering into Israel-Hamas war at Gaza. Deepening Middle East tensions have improved appeal for non-yielding assets.

Meanwhile, the US Dollar Index (DXY) has fallen vertically as soft PPI data has empowered geopolitical tensions.

FXStreet