Silver Prices Respond to Fed’s Interest Rate Decision.

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Summary: Silver prices, represented by XAG/USD, have witnessed an upward trend driven by a declining U.S. dollar and a decrease in Treasury yields. These shifts in financial markets followed the Federal Reserve’s decision to keep interest rates steady, suggesting a possible pause in rate hikes. Despite the Fed’s commitment to a strong labor market and economic growth, Chairman Jerome Powell’s comments have left room for a potential rate increase in December.

Key Points:

  1. The Fed’s Steady Hand: The Federal Reserve maintained its interest rates in the 5.25%-5.5% range, consistent since July. Chairman Jerome Powell hinted at the possibility of another rate hike in December during his press briefing.
  2. Dollar and Treasury Yields Movement: The U.S. dollar immediately depreciated by 0.5% in response to the Fed’s decision, making commodities like silver more attractive for foreign investors. Additionally, key Treasury note yields, including the 2-year and 10-year, saw significant declines, indicating market reactions to the Fed’s actions and comments.
  3. Powell’s Mixed Signals: Chairman Powell’s statements conveyed mixed signals, emphasizing the central bank’s commitment to achieving a 2% inflation target while highlighting tightening financial conditions and associated risks. These comments have left some traders believing that future rate hikes will be more challenging to implement.
  4. Silver’s Position and Near-Term Outlook: Silver maintains its appeal as a safe-haven asset amid global financial and political uncertainties, especially in the Middle East. Given the Federal Reserve’s current stance and the pending U.S. non-farm payrolls report, short-term sentiment for silver remains steady to bullish.
  5. Precious Metals’ Performance: In early November, precious metal prices experienced declines, with gold falling by 0.3% and silver by 1.5%. Gold futures remained in an uptrend, and silver’s performance showed potential for recovery despite short-term setbacks.

Silver prices are on the rise, influenced by a weakening U.S. dollar and a decline in Treasury yields. These financial shifts come in the wake of the Federal Reserve’s announcement to keep interest rates steady. This decision has led many to speculate that we may be witnessing the conclusion of the central bank’s series of rate hikes, at least for the time being.

Federal Reserve’s Stance

The Federal Reserve’s decision to maintain interest rates within the 5.25% to 5.5% range, a position held since July, was largely anticipated. In their recent statement, the central bank underscored the continued strength in the labor market and robust economic activity in the third quarter. Nevertheless, Chairman Jerome Powell, during his subsequent press briefing, left the door open for a potential rate hike in December.

The market reacted swiftly to the Fed’s decision. The U.S. dollar index dropped by 0.5%, making commodities like silver more affordable for investors dealing in other currencies. Simultaneously, yields on key Treasury notes, including the 2-year and 10-year, experienced a notable decline, underscoring the market’s response to the Fed’s decisions and statements.

While gold is a strong contender, silver is a significant opportunity, driven by central banks’ unprecedented accumulation, reclassification, and repatriation efforts for financial transparency and stability. The ongoing turmoil in the Middle East and global uncertainty have amplified silver’s appeal. Despite recent bearish price trends, it’s crucial to understand that silver’s unique characteristics and utility may not be accurately captured by traditional metrics. The gold-silver ratio, which stands at around 80:1, presents an intriguing trading opportunity. In conclusion, I see silver as undervalued and primed for substantial appreciation, possibly marking a generational trade

Powell’s Mixed Signals and Market Interpretation

Chairman Powell’s post-meeting statements appeared to convey mixed signals. While emphasizing the central bank’s commitment to achieving a 2% inflation target, Powell also pointed out the tightening of financial conditions and various associated risks. Many traders have interpreted this commentary as setting a considerably higher bar for future rate hikes.

Silver’s Position and Short-Term Outlook

Amid global events and increasing geopolitical tensions in the Middle East, silver remains an attractive option for investors seeking a hedge in times of financial and political uncertainty. Considering the Federal Reserve’s current stance and the imminent release of the U.S. non-farm payrolls report, the short-term sentiment regarding silver appears to be cautiously bullish.

Precious Metals Experience November Decline

At the outset of November’s trading month, precious metal prices witnessed a decline, with losses ranging from 0.3% for gold to 1.5% for platinum.

  • Gold for December delivery, down for the second consecutive day after four consecutive gains, decreased by $6.80 to close at $1,987.50 an ounce on the Comex division of the New York Mercantile Exchange. While December gold futures maintain a near-term technical advantage, the bears’ next downside price objective is pushing futures prices below solid technical support at $1,950.00.
  • Silver for December, falling for the seventh time in eight sessions, declined by 16.2 cents, or 0.7%, closing at $22.79 an ounce. It traded between $22.64 and $23.13 and saw a 1.9% drop on Tuesday, reducing its October gain to 2.2%.

In other precious metal prices on Wednesday:

  • January platinum fell by $14.50 to $930.40 an ounce.
  • Palladium for December delivery shed $11.90, or 1.1%, to $1,114.20 an ounce, trading between $1,109 and $1,150.50.

Silver’s Technical Outlook

Silver (XAG/USD) is displaying a modest upward move, hovering near the $23.00 mark, but with a lack of strong bullish conviction. The technical setup remains mixed, warranting caution among bullish traders. A sustained break below the $22.50-$22.45 zone could trigger a bearish sentiment shift.

The ongoing weakness of the U.S. dollar post-FOMC is a driving factor directing capital flows into commodities denominated in USD, including XAG/USD. This, coupled with positive technical indicators on the daily chart, supports the outlook for further appreciation. However, repeated failures near the supply zone at $23.60-$23.70, which forms a bearish multiple highs pattern, underscore the need for cautious optimism.

In summary, silver prices are influenced by a combination of macroeconomic factors, central bank decisions, and technical chart patterns. The short-term outlook is cautiously bullish, and traders should closely monitor key price levels for potential trend changes.

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