Silver price forecast ahead of the Fed interest rate decision

Silver price is trading sideways as investors await for the Fed’s interest rate decision later in Wednesday’s session. Russia-Ukraine talks are also at play in financial markets.

Fed’s interest rate hike

The US central bank is expected to increase the rates by 25 basis points from the current 0.25% to a maximum 0.5%. As the year progresses, analysts expect five-six such hikes as the Fed strives to deal with the inflation that is currently at a 40-year high. As is the case with other precious metals,an environment of higher interest rates is bearish for silver price as it increases the opportunity cost of holding the non-yielding asset.

As at the time of writing, the benchmark 10-year Treasury yields were at 2.16%. Earlier in the day, it rose to its highest level since May 2019. Higher bond yields will likely curb silver price’s upward potential in the ensuing sessions.

Russia-Ukraine talks

Similar to other precious metals, silver price has been on a decline since late last week. On Friday, President Putin indicated that talks between the two warring countries in eastern Europe had taken a “positive shift”.

Since then, silver price has remained below the crucial level of 26.00; falling from the 9-month high it had hit earlier in the week. The reaction was observable across all precious metals following the decline in the demand for safe havens. For instance, over the past four sessions, gold price has been trading below $2,000; having rallied to $2,070.98 about a week ago. Similarly, since Friday, palladium and platinum prices have dropped by close to 20 % and 10% respectively.

The Russia-Ukraine talks, which resumed on Monday, have yielded hope that the situation in eastern Europe will be resolved in the foreseeable future. In the ensuing sessions, investors will be keen on the progress of those negotiations.

 Negotiators from both sides have highlighted that the talks are headed in the right direction despite the recorded air strikes on a military base and residential buildings. During a video address on Wednesday, Ukraine’s President Volodymyr Zelenskiy  stated that position held by both parties is more realistic. Nonetheless, he added that substantial progress in the talks may need more time. Notably, a stalemate in the negotiations may yield a bounce-back in silver price.  However, the  bulls may lack enough momentum to retest the recent multi-month high.

Silver price prediction

Silver price is in the red for the fourth session in a row. Granted, it has been trading steadily above the crucial level of 24.00 since rallying past it over two weeks ago. However, after hitting its 9-month high of 26.94 in the past week, it has dropped by over 8%. As at the time of writing, it was down by 1.53% at 24.66.

On a daily chart, silver price is hovering around the 25-day exponential moving average at 24.80. Nonetheless, it remains above the 50-day EMA. In the immediate term, I expect the precious metal to hover around 24.80 as it finds resistance at the psychological level of 25.00. As such, the horizontal channel between 24.67 and 25.40 will be one to look out for as investors await the Fed interest rate decision on Wednesday.

As a reaction to Fed’s decision, the critical zone of 24.00 will be a support level worth watching. On the flip side, a stalemate in the Russia-Ukraine talks may have it bounce back to around 25.85.