Silver price pulls back as early Fed rate-cut hopes fade

Silver price (XAG/USD) pulls back at the start of the week and is trading in the $25.10s  after reaching close to the top of a long-term range. It is possible the correction is due to a change in expectations regarding the future path of interest rates, which are now expected to remain higher for longer in the US. 

Silver, like Gold, is a non-yielding asset so it tends to carry an opportunity cost – the price holders must pay for not staying in cash and earning interest. Recent US inflation data showed inflation remaining stubbornly high. This has delayed the time when the Federal Reserve (Fed) is expected to pull the trigger on cutting interest rates, which could be a factor weighing on the Silver price. 

Silver: Long-term bullish fundamentals

Interest rates are not the only factor affecting the price of Silver, however. The precious metal is used in a variety of industrial processes and an overall positive outlook for global growth is a beneficial factor for Silver demand in the long-term. 

Chinese data released on Monday showed a higher-than-expected rise in Industrial Production, which showed a 7.0% gain in February, beating the 5.0% expected and 6.8% previous. Fixed Asset Investment – which is investment in plant and machinery – rose 4.2% in February, versus estimates of 3.2% and 3,0% previously. Retail Sales grew more than forecast but less than previous, according to the National Bureau of Statistics of China.

Recent data from the US Federal Reserve also showed US Industrial Production beating estimates in February, and an improvement on the negative 0.5% of January. 

Silver price could be in for more gains as global demand increases for its use in the manufacture of Solar Panels, a wide variety of electronic devices and jewelry, according to Marcus Garvey an analyst at Macquarie. 

The Silver Institute, a not-for-profit organization based in the US, has forecast robust demand for Silver in 2024, predicting it will see its second best year on record with demand rising to 1.2 billion ounces. 

Technical Analysis: Silver knocks on the top of range

From a technical perspective, XAG/USD pulls back after almost reaching the top of a range that stretches between $19.00 and $26.00. This range itself lies within a broader range between $17.50 and $30.00. 

A decisive break above $25.85 would probably indicate a breakout to the upside, substantially increasing bullish enthusiasm. 

Silver might then rally to around $29.50, if using the 0.618 Fibonacci ratio of the range, or to just shy of $32.00 if extrapolating the full height of the range higher. 

If the latter, then it will mean the pair has also broken out of the top of the broader range, indicating even greater upside, potentially to a target at $37.50. 

Silver versus US Dollars: 4-hour chart

Alternatively the precious metal could meet tough resistance at the range highs in the $25.80-90s and pullback down. 

Traders should watch for a decisive break higher before jumping in. A “decisive” break  is one characterized by a long green daily candle piercing clearly above the level and closing near its high, or three green candles in a row, breaching the level.