Silver has a downside potential due to the Fed's aggressive policy

21 February 2023 179
Silver has a downside potential due to the Fed's aggressive policy

Precious metals are holding around a six-week low as traders are concerned about the Fed's monetary policy prospects. 

In fact, precious metals have been falling for three weeks in a row amid uncertainty over a rate hike. There has already been speculation that the Federal Reserve (Fed) could raise rates due to soaring inflation and growing indicators in the U.S. labor markets.

The Fed raised rates by 25 basis points at the end of its last meeting. And the central bank still maintains a hawkish stance. The Fed's minutes from its February session are due out on Wednesday. In addition, the Personal Consumption Expenditures (PCE) Price Index for January is expected to be released later today. 

These readings should be in line with the previous month, indicating sustained inflationary pressures. Moreover, the Purchasing Managers Index (PMI) is coming out today. Positive data could confirm that the U.S. economy is strong, and if so, the price of gold may continue its fall.

TD Securities experts predict a further decline of gold. Recent employment data heightened the risk of the Fed raising interest rates in 2023. Analysts believe that this scenario would lead markets to resume their downtrend and consolidate gold prices in the $1,750 range. 

If silver moves below $20.80 in June, it would signal a renewal of the downtrend for the metal, as TD Securities analysts said.

Based on the technical analysis, silver appears to be in a flat. Resistance for the precious metal's subsequent growth is the 200-hour moving average, along with the clear breakout levels of the previous days. Therefore, it will be difficult for silver to continue its uptrend, as it requires positive fundamental drivers. 

Given the weakness of gold, it makes sense that silver is going to act the same way, despite the lack of clear signals to go short. The downside target in silver could be a local low of $21.2. Stop-loss can be placed when the price goes up from the current breakout point, i.e. $22.0.

Silver is likely to decline:

Take profit - 21.2

Stop-loss - 22.0

This content is for informational purposes only and is not intended to be investing advice.

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