Silver rose by almost 10% for the past 2 weeks. The prices exceeded several important levels and started to slow only when entering the April trading range of 24.8-25.4. Although there are enough fundamental prerequisites for silver prices to rise, too drastic upward movement indicates the need for a pause or a slight correction. At the very least, the strongest overbought condition since April, which has formed on the charts of technical indicators, should be relieved.
Silver's positive dynamics are related to the prospects for significant growth in demand. Silver is one of the key components in solar power generation and electric car production. At the same time, a shortage of this precious metal may occur again this year. There has been a lack of silver since 2019, when demand began to steadily outpace supply. However, in recent years the market has been more focused on the tightening monetary policy of the U.S. Federal Reserve. As a result, not enough attention has been paid to the silver deficit.
In the next few days, the next Fed meeting will be the main topic on the financial markets again. Currently, the probability of interest rate hikes by 0.25% to the 5.25-5.5% range has almost reached 100%. Traders are still ignoring the statements of Jerome Powell and his colleagues about the need for additional monetary policy tightening in the fall. According to the consensus forecast, after the rate hike on July 26, the U.S. regulator will take a pause until March 2024, when the easing cycle should be started.
The stock market is approaching the Fed meeting at yearly highs, while the dollar index is not far from yearly lows. Therefore, investors' reaction to the U.S. financial regulator's actions may be quite strong. Large-scale profit taking can significantly correct prices for most assets, including silver.
The nearest target for silver price pullback is the 24.8 level. The RSI and Stochastic indicators are in dire need to relieve the overbought condition, and many bulls are surely ready to close some of their long positions after the strong rise in recent days.
The following trading strategy may be offered:
Sell silver for the current price. Take profit – 24.8. Stop loss – 25.4.
Traders may also use the Trailing stop instead of the fixed Stop loss at their discretion.
This content is for informational purposes only and is not intended to be investing advice.
