Silver Price Outlook Amid Prospects of Aggressive Rate Hikes

Apr 27, 2022 11:32 AM ET
Silver Price Outlook Amid Prospects of Aggressive Rate Hikes
  • Silver price remains under pressure as the US dollar hits a fresh two-year high. 
  • Investors are keen on the Fed interest rate decision scheduled for release in the coming week.
  • Concerns over Chinese demand have been eased by PBOC’s remarks on supporting the economy.

The silver price has eased on its downtrend, even as it remains below the critical support-turn-resistance level of $24.00. Notably, the given zone has offered steady support to the precious metal since late February as geopolitical tensions in eastern Europe heightened the demand for safe-havens. Since then, Monday marked the first trading session for a drop past the level. 

The close to 10% decline recorded over a span of one week has been fuelled by a strong US dollar and rising Treasury yields. Earlier on Wednesday, the dollar index hit a fresh March 2020 high at $102.52. For close to three weeks now, the psychological zone of $100 has offered steady support to the currency. Prior to that, it has been at an evasive level since May 2020. A strong greenback usually makes silver and other dollar-priced commodities to be more expensive for buyers holding other currencies. 

Amid the ongoing prospects of aggressive rate hikes by the Fed, I expect the silver price to remain under pressure in the short term. While price swings are likely in the ensuing sessions, they may be range-bound as investors await the Fed interest rate decision scheduled for 4th May. 

The market has already priced in a rate hike of 50 basis points for the May meeting. Nonetheless, in next week’s event, investors will be looking for clues of more aggressive increases in the coming months. 

During an interview with Bloomberg about a week ago, St. Louis Fed President, James Bullard indicated that a hike of 75 basis points cannot be dismissed. An environment of the high interest rates is set to strengthen the US dollar while weighing on silver prices and other commodities.  

Even so, the pullback in Treasury yields has offered some support to the silver price. A week ago, the benchmark 10-year yields hit the highest level since December 2018 at 2.98%. Since then, it has pulled back to 2.78% in the early Wednesday trade. While the pullback has lowered the opportunity cost of holding the non-yielding precious metal, it will likely rebound in the ensuing sessions. 

In addition to its status as a precious metal, its use as an industrial metal is also impacting silver price. In recent weeks, there have been heightened concerns over the demand for industrial metals in China- the commodities’ key consumer globally. The fears were founded on the soaring COVID-19 cases in Shanghai, the country’s commercial hub. Subsequently, authorities in Beijing have enacted an aggressive testing program to avoid a similar situation in the capital city. Nonetheless, industrial metals have been boosted by PBOC’s announcement that it will continue supporting the economy.    

Silver price forecast

Since hitting the month’s high of 26.21 over a week ago, it has declined by close to 10%. On Monday, it dropped to its lowest level in six weeks at 23.40. As of the time of writing, it was at 23.52.

On a daily chart, it is trading below the 25 and 50-day exponential moving averages. Based on both the fundamentals and technicals, I expect the silver price to remain under pressure for the remainder of the week. 

In particular, the critical level of 24.00, which has been a steady support level for the precious metal since Russia invaded Ukraine in late February, will be a zone worth looking out for. The bulls may lack enough momentum to break the support-turn-resistance level of 24.00 amid prospects of aggressive rate hikes. 

As such, the silver price will likely trade within the range of 24.00 and 23.32 in the short term. Below the range’s lower border, the bulls will be keen on defending the support at 23.00.

The daily silver price chart showing the recent downtrend

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