Silver extended its correction from 2021 highs above $30, and the current price stands at $22. The most significant force behind the silver price slide is the appreciation of the U.S. dollar and we could see even lower prices in the weeks ahead if the U.S. dollar remains strong.
Investors usually buy Silver and Gold to hedge against inflation, but we had a different practice last several weeks, and the focus remains on the dollar.
The U.S. Federal Reserve switched to a more hawkish tone, and the demand for the dollar continues to grow.
Despite a weaker than expected U.S. job report for November, Fed Chair Jerome Powell said that the U.S. central bank would consider a faster wind-down of its bond-buying program.
Powell’s announcement also raised speculations that interest rate hikes would also be brought forward especially because the inflation had spread more than previously expected and that the risk of persistent inflation has risen.
Last week, the United States reported that inflation rose at a 6.8% annual clip in November, the highest level in nearly 40 years.
The University of Michigan’s preliminary consumer sentiment index rose to 70.4 in December from 67.4 in November, and inflation remains the most serious problem for the U.S. economy.
The consumer price index also includes categories such as housing, apparel, travel, food, and medical care, and it showed that price gains were not isolated to just vehicle and energy sectors. Christoph Balz, an analyst from Commerzbank, said:
The Federal Reserve will, therefore, in all likelihood, accelerate the normalization of monetary policy at its meeting next week and scale back its bond purchases more quickly than before. The pace of tapering will probably double to $30 billion per month from the current $15 billion, ending new purchases by March and allowing for a rate increase in the second quarter of 2022.
Bears control the price actionSilver price has weakened from $25.3 to $21.8 since November 12, and the current price stands at $22.18.
Data source: tradingview.com The strong support level stands at $20, and if the price falls below this level, 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 $25 resistance, it would be a signal to trade Silver, and we have the open way to $27.
SummarySilver extended its correction from 2021 highs above $30, and the U.S. dollar’s strength is one of the main reasons that is driving Silver lower. For now, bears remain in control of the price action, the strong support level stands at $20, and if the price falls below this level, it would be a firm “sell” signal.
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