Silver price forecast as the gold/silver ratio retreats

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on May 4, 2023
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  • Silver prices have been in a strong bullish trend lately.
  • The Federal Reserve decided to hike interest rates by 0.25%.
  • The gold/silver ratio has been in a strong downward trend.

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Silver price continued soaring this week even after countries published weak manufacturing PMI numbers. It also rose after the latest interest rate decision by the Federal Reserve and as the gold/silver ratio continued falling. Silver was trading at $25.74 on Thursday, a few points below the year-to-date high of $26.

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Federal Reserve decision

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The most important silver news of this week was Wednesday’s interest rate decision by the Fed. As we wrote here, the Fed decided to hike rates by 0.25% in its May meeting. This hike pushed interest rates to the range of 5.0% and 5.25%, the highest it has been in more than a decade. It was also the fastest pace that the Fed has hiked in the past few decades.

Another notable fact about this decision was that it was unanimous, with all committee members in support. Analysts, using minutes of the last meeting and the ongoing collapse of regional banks, expected some FOMC members to recommend pausing rates.

Therefore, the current silver price action implies that investors believe that the Fed will not hike again this year. This also explains why the US dollar index (DXY) has drifted downwards as it prepares moving below $100.

Silver is usually impacted by Fed decisions because of its role as a precious metal. Historically, it does well when the Fed is either lowering interest rates or when it is shifting its policy. This explains why silver prices have soared by almost 50% from the lowest point in 2022.

Meanwhile, the gold/silver ratio has been in a downward trend in the past few weeks. It has dropped from the year-to-date high of $91.83 to the current $80. This is an important ratio that has existed for centuries. It now means that one ounce of gold is equivalent to 80 ounces of silver. 

Gold/silver ratio

Silver price prediction

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silver price

Silver chart by TradingView

Turning to the daily chart, we see that the XAG/USD has been in a strong bullish trend in the past few weeks. Along the way, silver has jumped above key resistance points at $24.65 and $26, respectively. It has also jumped above the 61.8% Fibonacci Retracement level.

Silver has also jumped above the 50-day and 100-day exponential moving averages (EMA), which is a bullish sign. Therefore, I believe that silver is on the cusp of a major bullish breakout in the coming weeks. If this happens, the next key level to watch will be at $30, which is ~17% above the current level. This view will be confirmed if it moves above the key resistance point at $27 (March 7 high).

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