Silver price remained under pressure this week as focus remained on the ongoing US-Iran conflict and the upcoming Federal Reserve interest rate decision. XAG dropped to $72.90, down modestly from this month’s high of $82.
SLV ETF outflows as macro risks remain
The ongoing silver price retreat has coincided with the selling by American investors. Data compiled by ETF.com shows that the iShares Silver ETF (SLV) has shed over $3.1 billion in assets this year, bringing its total assets to over $35 billion. These outflows have coincided with those recorded by the iShares Gold ETF (GLD).
Investors are likely booking profits after it surged to a record high this year. They are also concerned about the ongoing geopolitical tensions, which show no signs of easing. As we wrote earlier today, President Donald Trump is considering extending the blockade against Iran.
A continued blockade will lead to higher energy prices and affect the global economy. Indeed, Brent crude has jumped to $112 this week, up sharply from the year-to-date low of $55. The West Texas Intermediate (WTI) has soared to over $100, while jet oil has nearly doubled.
Silver is a dual-purpose metal. It is both a precious metal and an industrial one. As a result, its price normally underperforms the market when there are concerns about the global economy. Ideally, its demand usually falls when the economic growth has stalled.
Looking ahead, the next important catalyst for silver is the upcoming Federal Reserve interest rate decision. This meeting, which will be Jerome Powell’s final one, will be important because he will share details of his future.
Powell has two choices: leave the Fed when his term as Fed Chair ends or remain as a governor for the foreseeable future. To ensure Fed independence, he might try to remain as the Chair, denying Trump a chance to nominate a dovish official.
The Fed is at a crossroads as the US economy risks slipping into stagflation, characterized by slow economic growth and high inflation. A recent report showed that the headline consumer price index (CPI) jumped to 3.3% in March, and some economists believe it will soar to 4.2% by the end of the year. Another report showed that the economy grew by just 0.5% in the fourth quarter.
Stagflation is always a difficult situation for the Fed as cutting interest rates may drive up inflation. Hiking rates to fight inflation may affect economic growth. A hawkish Fed may push silver prices lower.
Silver price technical analysis
XAG price chart | Source: TradingView
The daily timeframe chart shows that the silver price has come down in the past few months. It has plunged from a high of $121 to the current $72 as investors have embraced a profit-taking approach.
Silver has now slumped below all moving averages, a sign that bears remain in control. It has also formed a head-and-shoulders-like pattern, a common bearish reversal sign in technical analysis.
XAU also remains below the Supertrend indicator. Therefore, the most likely scenario is where it continues falling, potentially to the key support level at $61. This price is about 17% below the current level. A move above the key resistance point at $83 will invalidate the bullish outlook.
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