- Silver price is on a rebound after plunging to the overbought territory on Thursday.
- Investors are likely to promptly shift focus to next week’s Fed interest rate decision.
- A dovish tone, coupled with optimism on silver’s industrial demand, may boost it beyond $24.
US inflation
Silver price is rebounding from the kneejerk reaction on Thursday following the release of higher-than-expected US retail sales. According to Census Bureau, retail sales rose by 0.7% in August MoM after dropping by 1.8% in the previous month. Analysts had expected a reading of -0.8%. With exclusion of the volatile food and energy components, core retail sales rose by 1.8% MoM after falling by 1.0% in July.
On the same session, the US Department of Labor released employment data, which is another crucial component in the ongoing inflation talks. On the one hand, the initial jobless claims rose from the previous week’s 312,000 to 332,000. The figure was also higher than the forecasted reading of 330,000.
Nonetheless, the four-week average jobless claims of 335,750 is lower than the prior week’s 340,000. Besides, the continuing jobless claims have declined from 2,852,000 to 2,665,000.
The inflation data has come two days after the release of US CPI numbers. The lower-than-expected figures were in line with the Fed’s narrative that the inflationary pressures are transitory.
On the one hand, silver price will likely remain under pressure in the near term as a reaction to the released inflation data. However, the market is bound to swiftly shift its focus to the Fed interest rate decision scheduled for next week.
In the recent past, the central bank has maintained that while tapering of asset purchases will likely commence before the end of the year, it is not a precursor to rate hikes. Jerome Powell’s cautious stance in the previous meetings has boosted precious metals while weighing on the US dollar. A dovish tone may push silver price to and beyond the crucial resistance level of $24.
Industrial demand
Silver doubles up as a precious and industrial metal. While it has remained under pressure since the beginning of September, the dull performance will likely end in the foreseeable future. Metals Focus, a renowned research firm, has maintained a bullish position. The expected capacity growth in the microchip sector, coupled with rising demand for EV solar panels, is set to boost the metal’s prices into the year’s fourth quarter.
Silver price outlook
Silver price have recouped some of the previous session’s losses when it plunged to an over one-month low of 22.61. At that level, it had entered the overbought territory with an RSI of 20. At the time of writing, it was up by 0.6% at 23.04 with an RSI of 35.
On a two-hour chart, it is trading below the 25 and 50-day exponential moving averages. However, the formation of a broadening bottom pattern points to a probable trend reversal. The pattern, which typically forms on a downtrend tends to trigger fear at the onset. This attracts more sellers before the bullish trend reversal.
In this case, 23.50 will likely be the base for the breakout. As such, I expect silver price to rebound further to this crucial support level. In the coming week, silver price may push past the resistance level of 24 as the bulls eye the next target at 24.50. However, to reach that level, there need to be enough momentum to break the resistance along the 50-day EMA at 23.64 and the upper level of 23.90.
