Silver price remained on edge on Thursday morning as investors reacted to the latest Federal Reserve interest rate decision. XAG was trading at $53.97, where it has been stuck at in the past few days. This price was about 24% below its highest level in September this year. It has formed a bearish flag pattern, pointing to more downside in the near term.
Silver, a top industrial and precious metal, moved sideways after the Federal Reserve delivered its interest rate decision. It left interest rates unchanged between 3.75% and 4%, with two officials voting to hike them by 0.25%.
In his press conference, Kevin Warsh said that inflation rate remained too high, citing the recent data showing that the headline and core consumer price index (CPI) rose 3.7% and 2.6% in September, moving further away from the bank’s target of 2.0%.
Most analysts, including those from Goldman Sachs, now believe that the Fed will hike interest rates in the December meeting. The view is that inflation will continue rising in the foreseeable future, with gasoline and diesel prices continuing their upward trend.
Silver often underperforms the market when the Fed has embraced a highly hawkish tone because of its impact on the bond market. US bond yields rose, with the ten-year rising to 5% and the five-year moving to 4.8%. Investors tend to rotate from silver to yielding bonds.
Higher interest rates also affect the economy by raising the cost of borrowing. In some cases, this usually impacts the industrial sector, where silver is widely used in the manufacturing of chips, solar panels, and kitchen appliances.
The next important catalyst for silver will be the upcoming macro data from the United States. For example, the Bureau of Economic Analysis (BEA) will release the latest personal consumption expenditure (PCE) data later today. This is an important number since it is the Federal Reserve’s favorite inflation gauge.
The US will also publish the latest GDP numbers. Economists expect the report to show that the economy expanded by 3.2% in the third quarter after growing by 2% in Q2. This growth rate is being driven by the data center buildup.
On the positive side, the iShares Silver ETF SLV has continued to add assets this year, a sign that investors expect it to bounce back. Its three-month inflows rose to over $960 million.
Silver chart | Source: TradingView
Technicals suggest that silver is on the cusp of a strong bearish breakout. It has formed an inverted cup-and-handle pattern, which is a common continuation sign. In this, it has already moved below the cup’s lower side of $54.
Silver has also formed a bearish flag pattern, which is made up of a vertical line and a horizontal channel. It remains below the 50-day and 100-day moving averages and the Supertrend indicator.
Therefore, the most likely scenario is where it breaks lower as investors target the key support level of $50. On the other hand, a move above the resistance level of $54 will invalidate the bearish outlook.
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