Silver Futures Index $SILVER (SILVER)

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Silver eyes breakout, buoyed by safe-haven bid and dovish Fed speak - FX Empire's Hyerczyck
By: Ernest Hoffman | October 11, 2023

The safe-haven bid driven by the Israel-Hamas conflict and dovish comments from Federal Reserve officials are combining to support silver prices, which could soon breach key levels and spark a breakout, according to James Hyerczyck, Senior Market Strategist at FX Empire.

“On Wednesday, spot silver (XAG/USD) is holding its ground at $21.88 per ounce,” noted Hyerczyck. “This balance is influenced by contrasting winds: dovish undertones from Federal Reserve officials have weakened the dollar, while geopolitical tensions involving Israel and Hamas are driving investors toward safe-haven assets like silver.”

Hyerczyck said that expectations for further rate hikes from the U.S. central bank have waned, driven in part by dovish commentary from the Fed itself. “[R]ecent comments from Fed officials are sparking a debate on the necessity and timing of further hikes,” he wrote. “Minneapolis Fed President Neel Kashkari and Atlanta Fed President Raphael Bostic have cast doubts on the urgency for additional hikes.”

This dovish outlook appears to be a “growing sentiment” among top Fed officials, Hyerczyck said, and the statements “have resulted in a weaker dollar, indirectly boosting the appeal of silver for investors.”

Among the macroeconomic factors he sees supporting silver are moderating price growth and rising geopolitical risk.

“Inflation, a significant concern earlier this year, is showing signs of retreating,” he said, noting recent comments from San Francisco Fed President Mary Daly that inflation is easing. “This lessening inflationary pressure reduces the opportunity cost of holding silver, an asset that doesn’t yield interest,” Hyerczyck said.

He added that investors will be closely watching this afternoon’s release of the Fed’s September meeting minutes and the U.S. CPI data on Thursday for further confirmation of the Fed’s dovish direction. “A higher-than-expected CPI could reignite talks of tighter monetary policy, which would undoubtedly put pressure on silver prices,” Hyerczyck said.

Heightened geopolitical tensions in the Middle East, and the Israel-Hamas conflict in particular, are also increasing demand for safe-haven investments, he noted. “In times of uncertainty, assets like silver often become the go-to choice for investors looking to hedge against volatility.”

Because silver is being influenced by disparate factors, Hyerczyck said that the precious metal’s short-term trajectory is difficult to discern. “While geopolitical tensions provide a supportive backdrop, the metal’s future moves will be heavily dictated by the upcoming U.S. economic indicators and the Federal Reserve’s policy direction,” he said. “Thus, the immediate outlook for silver remains delicately balanced between these contrasting market forces.”

Turning to the technical picture, Hyerczyck noted that the spot silver price “is nearing the trend line support at $22.23, which also coincides with the minor resistance level. A break above this dual threshold would typically indicate a bullish reversal, especially significant given that the commodity is rallying from a lower position.”



He added that silver is also not far below the 50-Day moving average of $22.97, which would add further bullish momentum if it’s successfully breached. “Considering all these factors, the market sentiment appears to be on the cusp of shifting from bearish to bullish, contingent on breaking and sustaining above these key levels,” he said.

Spot silver last traded at $22.02, and is up 0.83% on the session.

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