Silver may be weaker than gold if rates continue rising

Silver technically repeats the dynamics of gold, as both precious metals are now under the influence of macroeconomic factors. The question is about a more aggressive policy of the Federal Reserve (Fed) in response to rising inflation.

This scenario is supported by hawkish comments from Fed officials. The president of the Federal Reserve Bank in Cleveland, Loretta Mester, said that interest rates probably will rise above 5% as the Fed fights against inflation.

According to Daniel Gali, senior commodity strategist at TD Securities, it is reasonable to expect the pressure on the precious metals sector to continue.

Gali said the uptrend in precious metals is not in line with data on steady high employment, which has raised the risk that the Fed will not cut rates this year. Although Gali expects lower prices for gold, he said that silver may be the best way to play on the downside in the precious metals markets. He added that a silver break below $20.80 would confirm the resumption of the downtrend. Industrial demand for silver probably will continue to weaken along with the slowdown in global GDP growth.

This forecast is in contradiction to many analysts who predict the growth of silver this year. The scenario described above cannot be excluded. The statistics of the last few weeks increase the chances of such a negative scenario.

Additional pressure on silver is put by the strong labor market. Applications for unemployment benefits in the U.S. have been at a low level for several weeks in a row. This statistics confirms the stability of the economy and points to the possibility of the Fed to hold the key rate more aggressively, as it was said recently by representatives of the committee.

According to the technical analysis, silver broke down a new support level, which gives a sign that the downtrend will continue. It is possible to continue opening short positions in order to form a rectangle figure. Thus, the target will be the $20.9 level. In November 2022, this level served as support for the silver price. Stop-loss can be set in case of a return to the rectangle near the level of $21.5.

Decrease in the price of silver:

Take profit – 20.9

Stop-loss – 21.5