Silver Price Prediction Ahead of the Fed

Jan 25, 2022 11:02 AM ET
Silver Price Prediction Ahead of the Fed
  • Investors are keen on January’s Fed meeting that is set to start on Tuesday.
  • An environment of higher interest rates may weigh on the silver price.
  • Consumer confidence data and the overall inflation narrative will also impact the precious metal.

Fed meeting

Similar to other financial assets, the silver price is reacting to the Fed meeting scheduled to begin on Tuesday. The highly anticipated event will last for two days, culminating into the central bank’s interest rate decision. 

Goldman Sachs’ baseline forecast is for the Fed to enact its first interest rate hike in March, with the last one being in December 2018. Subsequently, it expects the US central bank to raise rates further in June, September, and December. The policy tightening is also set to include the reduction of its balance sheet from July. Nonetheless, economists from the investment bank see a possibility of more rate hikes in the current year amid the heightened inflationary pressures.

The market has priced in a rate hike in March. If the Fed decides to execute it earlier than that, the silver price may pull back further to $23.00 before bouncing back. 

On the one hand, its status as a hedge against inflation is expected to offer support to the precious metal.  However, an environment of high interest rates will increase the opportunity cost of holding the non-yielding asset. 

In early Tuesday trading, Treasury yields are trading higher, an aspect that has limited silver’s upward potential. The benchmark 10-year yields are at 1.76% after rebounding from Monday’s low of 1.70%. US bond yields usually offer support to the greenback while weighing on precious metals. 

At the time of writing, the dollar index, which tracks the value of the US currencies against a basket of six major currencies, was up by 0.11% at $95.97. In the previous session, it pulled back from a two-week high of $96.13 to an intraday low of $95.84.  

Notably, the silver price will also react to the US consumer confidence data scheduled for release later in Tuesday’s session. Analysts expect a reading of 111.8, which is lower than December’s 115.8. The index is a measure of people’s confidence in their financial capacity and the overall health of the economy. As such, a higher-than-expected figure will be bullish for the US dollar while weighing on the precious metal.

Silver price prediction

Silver price is hovering below the crucial support-turn-resistance level of 24.00 after dropping past it on Monday. The precious metal was on a two-week rally, surging by over 10% to a two-month high at 24.70 in the past week. However, it has since pulled back to Monday’s intraday low of 23.56 before bouncing back. In early Tuesday trading, it was down by 0.43% at 23.88.

The four-hour chart highlights a rather neutral outlook as investors avoid placing huge bets ahead of January’s Fed meeting and subsequent interest rate decision. It is trading above the 50-day EMA but below the 25-day EMA. 

Silver price will likely remain within the range between the 50-day EMA at 23.69 and the support-turn-resistance level of 24.08 as investors look for clues from the highly anticipated event. As a reaction to the Fed’s policy decision, the precious metal may decline further to 23.31 before bouncing back above the support level of 23.50. 

On the flip side, the bulls may gather enough momentum to push the price past the range’s upper border to 24.40. In the ensuing sessions, the zone between 23.50 and 24.00 will be one to look out for.

The 4-hour silver price chart, showing the key support and resistance levels

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