Silver price climbs 3% to 5-week high amid potential Fed rate cut
Silver surges 3% as Fed rate-cut speculation
Silver prices surged this week, reclaiming critical technical levels and hitting a five-week high as speculation about Federal Reserve policy shifts and a weaker U.S. dollar boosted sentiment.
The metal rose over 3% on Wednesday, surpassing its 100-day EMA and the 50% Fibonacci retracement level. As of Thursday's European session, silver extended gains by 1%, trading near $30.70, and eyeing a potential third consecutive daily close.
Silver's recovery followed lower-than-expected US inflation data for December, fueling expectations of two potential interest rate cuts from the Federal Reserve this year. The softer inflation outlook triggered a sharp decline in US Treasury yields, with the 2-year and 10-year bonds falling over 2% on Wednesday. Simultaneously, the US Dollar Index (DXY) weakened for the fourth consecutive day, enhancing silver's appeal to international buyers.
Supply constraints and RSI divergence to impact silver outlook
Analysis from silver’s supply and demand data reveals that overcapacity in China's solar panel industry has prompted companies to adopt a self-regulation program to manage the white metal supply. This development could temper demand for silver and potentially diminish its upside price prospects.
Silver price dynamics (October 2024-January 2025). Source: TradingView.
Silver's current rally faces a critical test as prices approach a long-standing bearish trendline originating from October 2024. While the 4-hour RSI is in overbought territory, suggesting a short-term pullback may be imminent, the daily RSI remains below overbought levels, offering a potential window for continued upward momentum if a breakout occurs. Silver's near-term trajectory hinges on its ability to break above the broader downward trendline. A sustained move past $30.70 could signal a broader upside, while resistance at the bearish trendline may limit upside potential.
China's recent stimulus measures provided potential support for silver. Silver hovered around the $30 mark during the European session as the market awaited clarity on its next direction.
