Silver price continued its strong comeback, soaring to a high of $32.25, its highest point since May 29 this year. It has jumped by over 21% from its lowest point in August and by almost 475 from its lowest level this year.
Similarly, the closely watched iShares Silver Trust (SLV) continued surging, reaching a high of $29.38, its highest level since May 28.
Silver received a Fed boost
The first main reason silver and gold have soared is that the Federal Reserve decided to slash interest rates by 0.50% in the last meeting.
In the meeting, the Federal Open Market Committee (FOMC) noted that they were highly concerned about the labor market and confident that inflation was moving towards the 2% target.
This month’s data confirmed this as the unemployment rate remained above 4% while the headline Consumer Price Index (CPI) retreated to a two-year low of 2.5%.
There are also signs that American consumers are increasingly concerned about the labor market. In a report on Tuesday, the Conference Board noted that consumer confidence dropped at the fastest rate in over three years, with most people expressing concerns about the jobs market.
Another report released by S&P Global showed that the manufacturing sector continued to contract this month.
Therefore, analysts believe that the Fed will continue cutting rates in the last two meetings of the year. The base case among analysts is that it will now move to cutting rates by 0.25% instead of 0.50%.Silver and other metals do well when the Federal Reserve has embraced a dovish tone.
Other global central banks have turned dovish. In Europe, the European Central Bank has slashed rates twice, while the Bank of England has signaled that it will resume cutting rates in the next meeting.
Silver prices rise in times of low interest rates for two key reasons. First, silver is often seen as gold’s small sibling, which explains the correlation between the two. Conversely, gold is usually seen as an alternative to the US dollar, which has continued falling.
Second, silver will benefit as some of the top sectors hurt by high interest rates start recovering. A good example of this is the clean energy sector, especially solar power, which has come under pressure in the past few years. Silver is widely used in the manufacture of solar panels.
Read more: Goldman Sachs Calls Gold The Best Investment Right Now
China stimulus concerns
Meanwhile, silver and other industrial metals jumped after China unveiled the latest stimulus to boost the ailing economy.
The current stimulus came in the form of the reserve ratio, or funds that the bank must hold in their balance sheet. In a statement, the People’s Bank of China (PBoC) reduced the ratio, a move that could unlock over $125 billion from banks, which will use them to lend.
This stimulus led to a big increase in the commodity market. Iron ore, which was in a deep bear market, bounced back and approached the key resistance point at $100. Similarly, copper, crude oil, gold, and crude oil prices bounced back.
Still, some analysts are concerned that the stimulus came too late and that its impact will be limited.
Some of the recent Chinese stimulus measures have yet to work out well. For example, the government unveiled a $70 billion stimulus a few months ago to help the troubled real estate sector. Months later, the industry is still languishing since the funds have taken long to arrive.
Silver prices also jumped because of the closely watched gold/silver ratio. The ratio formed a double-top pattern at $89.90. In most periods, this pattern is one of the most bearish patterns. It has now moved below the double top’s neckline, pointing to more decline in the coming weeks.
The gold/silver ratio is widely used to value the two commodities. When it drops, it means that silver is more expensive relative to gold.
Silver price analysis
The price of silver bottomed at $26.56 in August and has been in a strong bull run since then. Along the way, it flipped the important resistance point at $31.75, its highest swing on June 11.
Silver has also jumped above the ultimate resistance of the Murrey Math Lines. Additionally, it has moved above the 50-day Exponential Moving Average (EMA), meaning that bulls are in control for now.
Meanwhile, the Relative Strength Index (RSI) has continued rising, and is nearing the overbought point of 70. RSI is an indicator used to measure the rate of change of an asset. A higher figure is a sign that it has momentum.
The MACD indicator has also turned positive. Therefore, silver and the SLV ETF will likely continue the bullish momentum as traders target the final part of the Murrey Math Lines, which is known as the extreme overshoot at $32.8. In this case, SLV will jump to $32.
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