Silver extended its correction from its recent highs above $26, and we could see even lower prices in the weeks ahead if the U.S. dollar remains strong.
The demand for the dollar continues to grow as the Federal Reserve continues to hike rates in an effort to stem soaring inflation.
The appreciation of the U.S. dollar negatively influences Silver
The U.S. Federal Reserve switched to a more hawkish tone which positively influenced the U.S. dollar, and the most significant force behind the silver price slide was the appreciation of the U.S. dollar.
The U.S. Federal Reserve decided to lift the funds rate by 75 bps this month which is the largest hike since 1994, and the price of silver continues to be under pressure as the Fed is strongly committed to fighting inflation.
Gold and silver are considered a hedge against inflation, and the prices of these precious metals usually benefit during economic uncertainties, but rising interest rates increase the opportunity cost of holding the asset since it yields no interest.
Federal Reserve Chair Jerome Powell said that inflation data has become more worrisome, and the next Federal Reserve meeting could well be a decision between 50 bps and 75 bps.
St. Louis Federal Reserve Bank President James Bullard said that he would like to see the federal funds rate closer to 3.5% by the end of 2022, and for now, the focus of investors remains on the U.S. dollar.
On the other side, if the U.S. Federal Reserve continues to act too aggressively, this could potentially move the economy toward a recession.
David Meger, director of metals trading at High Ridge Futures, said that as a result, we could see a move towards safe-haven assets, and the price of silver would benefit if this happens. Daniel Ghali, commodity strategist at T.D. Securities, added:
In the short term, the outlook for safe-haven assets is mixed as there is great uncertainty this summer, with chances of a more aggressive Federal Reserve on one side and recession risks on the other.
Bears control the price action
Silver price has weakened from $26.9 to $20.46 since March 08, 2022, and the current price stands at $20.76.
The important support level stands at $20, and if the price falls below this support, it would be a firm “sell” signal. The next price target could be around $18 or even below.
On the other side, if the price jumps above $23, it would be a signal to trade silver, and we have an open way to resistance at $24.
Summary
The U.S. Federal Reserve switched to a more hawkish tone which positively influenced the U.S. dollar, and the most significant force behind the silver price slide was the appreciation of the U.S. dollar. For now, bears remain in control of the price action, the important support level stands at $20, and if the price falls below this level, it could be a beginning of a much stronger sell-off.
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