Silver price has been dead money in the past few months as concerns about China have coincided with optimism that the Federal Reserve will start cutting interest rates this year. It has remained between $20.70 and $26.11, making it a bad holding for most investors. Its performance has differed from that of gold, which at least surged to its highest point on record in December.
Global growth concerns and monetary policySilver is a unique metal because of how it is used and viewed by investors. Unlike copper and lithium, silver serves the dual purpose of being an industrial and a precious metal. As a result, its price action reacts to both economic numbers and actions of the Federal Reserve.
Therefore, silver price has lagged as some key economies go through a slowdown. China, in particular, has been in the spotlight as its real estate market continues imploding. On Monday, a Hong Kong court ordered Evergrande, a company with over $300 billion in assets to liquidate.
There is a serious risk that the economy is not doing well. In addition to the real estate sector, the manufacturing industry has remained in the red for a while. The manufacturing PMI has been below 50 several times since last year.
Further, the youth unemployment rate remains above 20% while Foreign Direct Investment (FDI) has crashed. Many foreign investors in China have started to withdraw their funds. China is not the only country in trouble. Data published on Tuesday revealed that the European economy stagnated in the fourth quarter, narrowly avoiding a recession.
There are signs that the American economy is also slowing. All these factors are affecting silver demand.
The next important catalyst for silver prices will be the upcoming Federal Reserve decision on Wednesday. Most economists don’t expect the Fed to do anything in this meeting. It will leave interest rates unchanged between 5.25% and 5.50%.
However, silver will likely react to the outlook of the next Federal Reserve actions. Silver will rise if the bank hints that a rate cut will come in March. A hawkish tone, however, will drag silver and push the US dollar higher.
Silver price forecast
Turning to the weekly chart, we see that silver has broadly moved sideways in the past few years. It has remained between $20 and $26 in the past 12 months. Silver has formed a small hammer pattern, which is a bullish sign. It is still inside the Ichimoku cloud and has formed an inverse head and shoulders pattern.
However, it has also formed a double-top pattern at $26.11 whose neckline is at $20.9. A double-top pattern is a popular bearish sign. Therefore, the outlook for silver is neutral at this stage. A strong bullish breakout will be confirmed if the price jumps above the neckline of the H&S pattern at $26.11.
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