Silver heading to $25?
• Gold and silver have been boosted on haven flows, falling yields
• Fed’s rate decision key risk event for metals
• Higher high above $22 means path of least resistance to the upside
The precious metals rally has taken a pause for breather. But I don’t think they are done just yet. Gold remains on course to potentially hit a new all-time high above $2075, after briefly poking its head above 2K earlier, where it was then hit by profit-taking. Silver also came off its high, but it too looks like it wants to go further higher from here. And it is this, the so-called poor man’s gold, that I would like to concentrate on in today’s report on precious metals.
The metals have been rallying in part because of heightened uncertainty over the traditional banking system over the past couple of weeks or so, as well as safe haven demand boosting the appeal of precious metals. Concerns over banks are still out there, which may keep bond yields under pressure as investors price out the risks of further tightening by central banks. Lower yields would typically boost the appeal of zero-yielding assets like precious metals and cryptocurrencies.
On Monday, gold and silver both eased off their highs as bond yields bounced off their lows along with the major equity indices as investors digested news of Credit Suisse’s takeover by UBS and the coordinated central bank action announced over the weekend.
Given that central banks are starting to provide liquidity again and easing off the gas in terms of rate hikes, this should keep gold and silver supported.
Speaking of central banks, it will be a busy week of interest rate decisions. The Federal Reserve, Bank of England and Swiss National Bank will have to decide whether to continue their fight against inflation or pause the hiking amid the turmoil in the banking sector.
Out of the three central banks mentioned, it will be the Fed’s decision that will probably have the most impact on precious metals and the wider financial markets. The Fed was previously expected to hike interest rates by 50 basis points at the conclusion of Wednesday’s FOMC meeting. But that was before the SVB’s collapse, when the market was also projecting a terminal rate as high as 5.66% around August. That forecast has come down sharply. It now stands at 4.25% for around the same period, meaning to get there would require a rate CUT from the current range of 4.50 – 4.75 percent. Still, the market sees a good chance the Fed will hike by 25bp at this week’s meeting. Whether the dollar will find support or come under further pressure will also depend on the update to the dot plots of officials’ rate forecasts and Chairman Powell’s remarks at the press conference. The less hawkish the overall message, the further the dollar is likely to fall, and the more precious metals will likely benefit. And vice versa.
Ahead of the Fed decision, silver has been shining brightly with the metal breaking above key resistance around $22.00 last week, closing on Friday above that level after the conclusion of a bullish consolidation period that had lasted for a few days. Given that silver has now created a higher high, the path of least resistance is confirmed to be to the upside.
From here, a move up towards 23.40ish, the base of the previous breakdown looks favourable. But given gold’s breakaway, silver has a lot of catching up to do. For that reason, I am confident we will see an eventual breakout above $25 in the not-too-distant future.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
• Fed’s rate decision key risk event for metals
• Higher high above $22 means path of least resistance to the upside
The precious metals rally has taken a pause for breather. But I don’t think they are done just yet. Gold remains on course to potentially hit a new all-time high above $2075, after briefly poking its head above 2K earlier, where it was then hit by profit-taking. Silver also came off its high, but it too looks like it wants to go further higher from here. And it is this, the so-called poor man’s gold, that I would like to concentrate on in today’s report on precious metals.
The metals have been rallying in part because of heightened uncertainty over the traditional banking system over the past couple of weeks or so, as well as safe haven demand boosting the appeal of precious metals. Concerns over banks are still out there, which may keep bond yields under pressure as investors price out the risks of further tightening by central banks. Lower yields would typically boost the appeal of zero-yielding assets like precious metals and cryptocurrencies.
On Monday, gold and silver both eased off their highs as bond yields bounced off their lows along with the major equity indices as investors digested news of Credit Suisse’s takeover by UBS and the coordinated central bank action announced over the weekend.
Given that central banks are starting to provide liquidity again and easing off the gas in terms of rate hikes, this should keep gold and silver supported.
Speaking of central banks, it will be a busy week of interest rate decisions. The Federal Reserve, Bank of England and Swiss National Bank will have to decide whether to continue their fight against inflation or pause the hiking amid the turmoil in the banking sector.
Out of the three central banks mentioned, it will be the Fed’s decision that will probably have the most impact on precious metals and the wider financial markets. The Fed was previously expected to hike interest rates by 50 basis points at the conclusion of Wednesday’s FOMC meeting. But that was before the SVB’s collapse, when the market was also projecting a terminal rate as high as 5.66% around August. That forecast has come down sharply. It now stands at 4.25% for around the same period, meaning to get there would require a rate CUT from the current range of 4.50 – 4.75 percent. Still, the market sees a good chance the Fed will hike by 25bp at this week’s meeting. Whether the dollar will find support or come under further pressure will also depend on the update to the dot plots of officials’ rate forecasts and Chairman Powell’s remarks at the press conference. The less hawkish the overall message, the further the dollar is likely to fall, and the more precious metals will likely benefit. And vice versa.
Ahead of the Fed decision, silver has been shining brightly with the metal breaking above key resistance around $22.00 last week, closing on Friday above that level after the conclusion of a bullish consolidation period that had lasted for a few days. Given that silver has now created a higher high, the path of least resistance is confirmed to be to the upside.
From here, a move up towards 23.40ish, the base of the previous breakdown looks favourable. But given gold’s breakaway, silver has a lot of catching up to do. For that reason, I am confident we will see an eventual breakout above $25 in the not-too-distant future.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
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