Silver price
Silver was one of the best-performing metals in the market today as the market reacted to an interview the Federal Reserve chair did yesterday. Silver price (XAGUSD) rallied by almost four per cent while the price of copper, gold, and palladium rose by more than 2%, 0.91%, and 5.0% respectively.
Part of the reason why silver price rallied today was a statement made by Jerome Powell, the Fed chair. In an interview made yesterday, the chair said that the US economy will continue being weak until 2021. He also predicted that the economy would contract by more than 30 per cent in the current quarter. Also, he said that the Fed still had tools to support the economy.
It is these tools that excited the precious metals markets since most traders expect the bank to increase its quantitative easing program. Some also expect the bank to move to negative interest rates to cushion the economy.
The market is probably moving to precious metals because they fear that these actions by the Fed will stir inflation. The precious metals tend to be hedges of inflation since their prices rise when other prices rise as well.
Another reason why silver price is rallying is that its price was undervalued as I have written several times before. One way of valuing silver is to consider the gold-to-silver ratio. In the recent months, the ratio has soared to the highest level in more than 5,000 years. Because of the valuation, traders rushed to silver because they expect the price to soar as gold stays in its highest level since 2012.
Download our Q2 Market Global Market Outlook
As you recall, last week, I wrote that silver price was in a cusp of a breakout, citing the bullish pennant pattern that had developed. Today, the price broke out as I had predicted. As it did this, the price formed the three white soldiers pattern, which is usually a bullish pattern. On the daily chart, the price is slightly below the 78.2% Fibonacci retracement level. Therefore, while the upward trend will continue, I expect the price to find a strong resistance near the 78.2% fib level of 17.40.
On the flip side, a move below 15.30 will invalidate the bullish trend. This price is along the 50% retracement level. It is also along the upper side of the bullish pennant pattern.