Strategy
Sell at $23.80 with a stop below $24.70 for profit target $22.00
Technical View
Price has been caught in the previous month range but looks like it could be declining to test the previous low again. A bearish Engulfing candlestick price pattern in the previous trading session is hinting that price may have hit a high. Stochastic is also in the overbought zone and there could be a bearish crossover by the Stochastic indicator in the coming days ahead. MACD is also turning down from its previous momentum peak, hinting at a bearish price trend. At the moment, only the 20EMA is hinting at a bullish price trend. However, we favour a decline back to $22.00.
Fundamental View
US 10-year Treasury yield rose to 2.0%, as investors increasing expect a tight labour market and rising inflation to fuel the U.S. Federal Reserve into becoming more aggressive in raising rates and tapering its balance sheet of US$9 trillion. Recent employment data also adds fuel to expectations that the Fed will raise inflation rate to fight inflation given that a majority of citizens are in employment in the aftermath of the COVID-19 pandemic. With inflation running at 7.5% in February 2022, which is a 40-year high, the Fed may be forced to hike interest rate more and faster than its original plan of 8 interest rate hikes as disclosed by its chairman Powell in mid-December 2021.
Money market are also pricing in a 50bp rate hike by March 2022, which is earlier than what the Federal Reserve had indicated. The Federal Reserve had indicated that there will be 3 interest rate hikes this year, followed by another 3 hikes in 2023 and 2 more hikes in 2024. However, market has now priced in a one-in-three chance the Fed might hike by a full 50 basis points in March, and a reasonable chance rates will reach 1.5% by year end. This is double what the Fed had indicated.
A higher interest rate will increase the cost of holding Silver. While commodity prices are rising as a result of inflation, a faster pace of rate hikes by the Fed may be too much for Silver in the long run.