Silver price held steady above the critical resistance-turn-support level of $20 as the US dollar index and gold/silver ratio fell. Traders are now shifting their attention to the US CPI numbers for further cues on the Fed’s monetary policy decision in coming months.
Gold/silver ratio
Both gold and silver are precious metals that are considered as conventional safe havens in times of geopolitical and economic turmoil. Ideally, recession concerns and the overall slowing of the global economy are bullish drivers of these financial assets.
However, the Fed’s monetary policy decisions and their impact on the US dollar have been more influential in the precious metals market. For instance, as is the case with other dollar-priced assets, silver price tends to decline in an environment of a strong greenback and vice versa.
At the same time, the gold/silver ratio is a crucial factor for silver price movements. The metric highlights the value of silver compared to that of its more lustrous cousin, gold. On Tuesday, the ratio plunged to $80; its lowest level since April. This means that in dollar terms, an ounce of gold equals 80 ounces of silver. Notably, it has dropped by over 16% since hitting its highest level year-to-date.
Indeed, the decline in the gold/silver ratio coincide with that of the dollar index. DXY was at $110.52 as at the time of writing after hitting its YTD high of $114.81 in late September. Signs that the Fed may pivot its interest rate hikes from its December meeting, coupled with the mixed US jobs data, have been the key drivers of the US dollar and silver price by extension.
The investors’ attention is now shifting to the US CPI numbers scheduled for release on Thursday. The figures will avail further directional cues regarding the Fed’s monetary policy decision. Notably, an environment of high interest rates tends to weigh on precious metals.
Silver price prediction
As shown on its daily chart, silver price remained steady above the 25 and 50-day exponential moving averages. Besides, it has risen above the ascending trendline highlighted in red.
While these technical indicators point to further gains in the ensuing sessions, I expect subtle movements in the short term as traders await further cues from the US CPI data. From this perspective, the range between 20.32 and 21.24 will be worth watching.
Later in the week, higher-than-expected CPI numbers may push silver price back below the critical level of 20. If that happens, the bears will have an opportunity to retest the lower support level of 19.55.
