Silver Price Forecast: XAG/USD retreats from nearly three-year high to below $28.00

Silver price (XAG/USD) trades with mild losses around $27.85 after retracing from the fresh three-year high of $28.53 during the early European session on Thursday. The lower speculation that the Federal Reserve (Fed) will cut the interest rate in June drags the gray metal lower. Investors await the US March Producer Price Index (PPI) on Thursday for fresh impetus. 

Traders slashed bets on Fed interest rate cuts on Wednesday after US inflation was hotter than expectations and US President Joe Biden acknowledged that there was more work to be done to combat rising prices. The US Consumer Price Index (CPI) report in March suggested that the path of easing inflation remains extremely bumpy and the US central bank is likely to maintain the higher-for-longer rate narrative. This might limit the upside of silver as the gray metal becomes less attractive compared to interest-bearing assets. Fed Funds Futures market pushed expectations for the first rate cut from June to September, according to the CME FedWatch Tool.

On the other hand, rising industrial demand and its attraction to an alternative inflation hedge might cap the downside of silver prices. Additionally, the ongoing geopolitical tensions in the Middle East and its attraction to an alternative inflation hedge might lift silver prices in the near term as Israel and Hamas rejected ceasefire talks and Iran vowed retaliation for an airstrike on its embassy in Syria.