The prospect of a rate rise from the US Federal Reserve in September has all but sealed the fate of Silver recently. The bearish trend has been dominating and the recent 6 year low now looks to be the target.
The sentiment has been undeniable and relentless. The market believes a rate rise in September is inevitable and certainly the Fed is only adding to that speculation. FOMC member Bullard said last week that the Fed was “in good shape” to raise interest rates in September. The data has remained relatively mixed and if the Fed does push ahead with a rate rise, it will be based on the headline Unemployment rate and growth, not inflation.
The US Unemployment rate has fallen to a 6 year low at 5.3% which is certainly a positive for the US economy, but the underlying data remains mixed. Personal income rose by 0.4% vs 0.3% exp, but the prior month was revised lower by 0.1%. Personal spending rose by 0.2% as exp., but the prior month was revised lower to 0.7% from 0.9%. On Friday we saw the slowest pace on record for wage and salary growth since 1982, but the Fed will point to the headline figure when deciding rates.
Growth has remained strong at 2.3% q/q (annualised), however Q1 growth was revised downwards from 0.2% to -0.2%. The winter months are generally slower and the Fed sees this result as robust. Headline inflation is the big problem for the Fed at just 0.1% y/y, largely thanks to falls in the price of fuel. The core CPI is looking a little rosier at 1.8% y/y but the headline figure is a worry.
So will the Fed raise rates and where does this leave Silver? The Fed appears resolute on raising interest rates in September despite the data not demanding it. The Fed need the breathing room of higher interest rates if a downturn comes and the equity bubble needs some air taken out of it. Silver has been taken close to the 6 year lows thanks to the market’s expectation that the Fed will push ahead with a rate rise.
Leading into the FOMC meeting on September 16th-17th we will likely see an increase in volatility in Silver and traders and banks take their positions. Keep in mind that we haven’t seen a change to interest rates since December 2008 so the market will be fizzing at the prospect of a rate move. Silver generally moves inversely to interest rates because it doesn’t pay a return, so higher interest rates make bonds more attractive. It is safe to assume that if we see a rate rise, the bear trend will likely deepen.
Until then, keep an eye on the support at $14.359 an ounce. This is likely to come under heavy pressure as the speculation only grows. If this line fails under the expected volatility, stops will be triggered and it will provide a nice breakout play for anyone looking to take advantage of the short bias.
Silver has been dominated in recent months by a bearish trend thanks to the market expecting a rate rise from the Fed. The data doesn’t necessarily call for a rate rise, but the speculation is that the Fed will push ahead anyway. This is only going to lead to further bearish moves in Silver.
Forex and CFDs are leveraged financial instruments. Trading on such leveraged products carries a high level of risk and may not be suitable for all investors. Please ensure that you read and fully understand the Risk Disclosure Policy before entering any transaction with Blackwell Global Investments Limited.
Recommended Content
Editors’ Picks
EUR/USD trades weak below 1.0800 amid Good Friday lull, ahead of US PCE
EUR/USD remains depressed below 1.0800 after soft French inflation data, amid minimal volatility and thin liquidity on Good Friday. The pair keenly awaits the US PCE inflation data and Fed Chair Powell's speech for fresh hints on next week's price action.
GBP/USD holds steady above 1.2600 as markets stay calm on Good Friday
GBP/USD trades sideways above 1.2600 amid a typical Good Friday trading lull. A broadly firmer US Dollar could keep any upside attempts limited in the pair ahead of the US PCE inflation data and Fed Chair Powell's appearance.
Gold price sits at all-time highs above $2,230, US PCE eyed
Gold price hit all-time highs at $2,236 on Thursday to finish Q1 2024 with a bang. Most major world markets, including the US are closed due to Holy Friday, leaving volatility around Gold price highly subdued. US PCE inflation and Powell are awaited.
Jito price could hit $6 as JTO coils up inside this bullish pattern
Jito (JTO) price has been on an uptrend since forming a local bottom in early January. Since then, JTO has revisited the key swing point formed in early December, suggesting the bulls’ intention to move higher.
Key events in developed markets next week
Next week, the main focus will be inflation and the labour market in the Eurozone. We expect services inflation to be impacted by the easter effect, while the unemployment rate to be unchanged.