Firm on Weaker Dollar, but Gains Capped by Hawkish Fed

Overview

Silver prices are edging higher on Monday, supported by a weaker dollar and firmer gold prices. However, the metal continued to hover near three-month lows as traders assessed the likelihood of more interest rate hikes by the U.S. Federal Reserve. Last week, silver experienced its largest weekly drop since October 2022, following hawkish comments from Fed officials emphasizing the need for further rate hikes to combat persistent inflation.

Powell’s Hawkish Testimony Weighs

Fed Chair Jerome Powell’s cautious congressional testimony signaled future interest rate hikes, strengthening the dollar. His hawkish stance, favoring rate hikes over cuts, created a bearish sentiment in the precious metals market. Higher interest rates diminish the appeal of non-yielding assets like silver and gold to investors.

Uncertain Outlook Dampens Silver’s Appeal

Investor appetite for silver and gold is uncertain due to an unclear outlook. Exposure has decreased since the last Fed meeting, reflecting a shift in sentiment as demand slows down seasonally. Although we may be approaching the end of the tightening cycle, there is a risk of its extension.  This adds to the current depressed price action.

High Rate Hike Expectations

San Francisco Fed Bank President Mary Daly projected that there would be two more rate hikes this year, a sentiment shared by many investors who now anticipate a 72% chance of a rate hike in July, according to CME’s Fedwatch tool.

Silver Traders Ignore Russian Turmoil

In the broader market, oil prices saw a slight increase due to concerns over crude supply following an abortive weekend mutiny by Russian mercenaries. However, stocks lacked direction as investors awaited further clarity on the situation. Despite the geopolitical developments, silver and gold, typically considered safe-haven investments, showed limited movement.

Short-Term Forecast:  Bearish Sentiment

Overall, silver prices are influenced by a combination of factors, including the dollar’s strength, gold prices, interest rate expectations, and geopolitical uncertainties. As the market remains cautious and awaits more clarity, the short-term outlook for silver leans towards a bearish sentiment.

Technical Analysis

The current market sentiment for silver is slightly bearish. With a current price of 22.765, slightly lower than the previous close of 22.775, there is a short-term bearish indication. The price is below both the 200-4H moving average of 23.759 and the 50-4H moving average of 23.391, reinforcing the bearish sentiment.

The 14-4H RSI at 46.76 falls within the neutral range, suggesting a nearly balanced trade without extreme buying or selling pressure.

Overall, the market sentiment for silver leans slightly towards bearishness although the market is experiencing a short-covering rally after hitting a 3 month-low at $22.14.