Silver price crashes below 200MA ahead of FOMC minutes

Metals have had a difficult time in 2023 as concerns about demand coupled with the strong US dollar comeback trouble investors. The crisis in the sector has spread across base metals like copper and precious ones like silver, gold, and platinum. Silver price tumbled to a low of $21.18 last week, the lowest level since November last year.

Demand concerns and strong dollar

Silver price remarkable collapse last week coincided with the strong US dollar comeback. After falling to near $100, the US dollar index (DXY) rebounded to a high of $104 after the strong economic data from the United States.

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The numbers showed that US inflation remained above 6% in January. Making it worse is the fact that the unemployment rate has crashed to the lowest level since 1953. In economics, a low unemployment rate leads to a higher inflation as it increases consumer spending. This situation is known as Philip’s Curve. 

Therefore, the Federal Reserve is expected to continue tightening since the American economy seems to be doing well. For example, retail sales jumped to the highest level in more than two years last month. In separate notes, analysts at Goldman Sachs and Bank of America warned that the Fed could hike rates until June this year.

Silver is also reacting to the deteriorating US and China relations that I wrote about here. The two sides have accused each other of various issues, including balloons, Ukraine war, and trade protectionism. As a result, we could see situation move from bad to worse. As an industrial metal, silver does well in periods when there is global stability and demand.

The main catalyst for silver this week will be the FOMC minutes that are scheduled for Wednesday. These minutes will provide more color about the deliberations that happened during the last meeting.

Silver price prediction

Silver dropped to $21.24 last week, which was a notable level since it was the highest level on October 4. It was also at the same point as the 38.2% Fibonacci Retracement level. Silver has also crossed the 200-day and 50-day exponential moving averages. It has also formed a small hammer pattern, which is a bullish sign.

Still, I suspect that the bearish trend will continue this week, with the next level to watch being at $20. The stop-loss of this trade will be at $23.