The christmas that silver buyers wish for
|Silver prices have remained firm despite the robust US economic data, and the Federal Reserve committed to tapering their QE program and eventually increasing interest rates.
As per the CME FedWatch Tool, the majority of the market expects the Fed to have increased their key rate at least two times, to reach 50-75bps, by the end of next year. The same tool also gives it a 31.5% chance that the rate could have been increased three times to 75-10bps.
It is also likely that by the end of next year, that the bottlenecks we are seeing today will have been sorted and that supply-side inflation will have slowed. Lower future inflation, and higher interest rates, lift the real yield, which is USD positive and silver price negative.
However, much can happen between now and the end of next year, and the way the market is currently trading, it looks like investors prefer the safety of silver. We can see this as the silver prices are likely carving out the right shoulder of the head and shoulders pattern by bouncing from $23. It could be a bet that inflation will remain high and that the Fed is not bold enough to reign inflation. The same view is echoed in stock market indices.
How to trade this view?
The aggressive traders are already long as the price bounced from $23. Whilst conservative traders will wait for a break to the “neckline” at $24.80, on the price trading above this level, the pattern suggests the price might trade as high as $28.22. This level is also the June 2021 high.
XAGUSD Daily Chart
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