Silver continues to consolidate at $25. A head and shoulder pattern has formed on the daily timeframe, and it signals a further decline in the metal. Next week, the U.S. central bank, which has so far not commented on abandoning its hawkish monetary policy course, will speak. After the Fed meeting, it will be clear which direction the rate will take for the rest of the year.
Nevertheless, investor expectations could revalue precious metals downward before the meeting, as the regulator has remained tough in its statements lately.
Hedge funds, being professional market participants, bet on higher inflation in the future, and that will hurt all precious metals. High inflation means a more zealous struggle of central banks.
According to the Commodity Futures Trading Commission, leveraged investors increased their net short positions in 10-year Treasury futures to a record 1.29 million contracts as of April 18. It was the fifth consecutive week of increases in net shorts.
Damien McColough, head of fixed-income research at Westpac Banking Corp, predicts more aggressive inflation than many market participants currently expect. At first glance, the increase in short positions signals a low probability of a recession soon.
According to the technical analysis, there is a volatility compression in silver, which will eventually lead to sharp price momentum. Head and shoulders pattern has formed on the daily timeframe: this is the exit from suggesting a downward movement. A pennant pattern is formed on the hour timeframe. We assume the downward exit from this figure on the negative external background.
The movement within the pennant, which corresponds to $24, will be the downside target. We will place a stop-loss at an upward exit from the figure and renewal of its highs near $25.6. Now, only some unexpected events, which are difficult to predict, can overestimate precious metals upward.
Decrease in silver price:
Take profit — 24
Stop-loss — 25.6