Silver price forms a bullish pennant pattern after dovish Fed; what next?
Silver price diverged with that of gold as investors reflected on the Federal Reserve interest rate decision. The price of silver declined by almost 1% as that of gold decline slightly by almost 20 basis points.
Fed rate decision
Silver price was not the only one in the red today. The price of base metals like nickel, lead, zinc, aluminium, and copper also declined sharply today. Other asset classes like stocks declined by more than 1% while the US dollar index rose.
The decline in silver price is likely because of the Fed decision. In a statement, the bank said that it expects the US economy to remain being weak for the next few years due to the lockdown. As a result, they expect to leave interest rates unchanged and continue with the asset purchases at a pace of $120 billion per month. Therefore, with investors worried about the economy, they ran to the safety of the US dollar.
Also, while silver is usually considered a precious metal, it is also an industrial metal whose demand tends to rise as the economy strengthens. Therefore, investors are concerned because a sluggish economy will lead to lower demand.
Reasons to be optimistic
There are a few reasons to be optimistic for silver price. First, the global economy is recovering, going by the latest economic data. For example, inflation data from the US released yesterday showed that prices were relatively stable in May.
Also, manufacturing and services PMIs around the world have been relatively stable. Better, US employment numbers showed that the economy created more jobs than earlier expected.
Silver price is trading at $17.8750. On the daily chart, the price is above the 50-day and 100-day exponential moving average. The price is also forming a bullish pennant pattern, which is shown below. This implies that the bullish trend will likely continue as bulls attempt to move past previous resistance level of 18.3880.
On the flip side, a move below the psychological level of 17.000 will invalidate this bullish trend. It will send a signal that there are still more sellers in the market who will be keen to push the price lower.