Silver price forecast: Signal after the Fitch rating downgrade

Silver price came remained under pressure this week as investors reacted to weak economic data from China and the US. It also reacted to last week’s interest rate decision by the Federal Reserve and the US rating downgrade. Silver was trading at $24, lower than July’s high of $25.25.

Slow economic growth and Fed decision

Silver price has reacted to several important news recently. Last week, the Federal Reserve decided to hike interest rates by 0.25% in what some believe is the final increase of the year. It pushed rates to the highest level in more than 22 years.

There are signs that this was the last rate hike by the Fed since America’s inflation is falling. The headline inflation dropped from 4.1% in May to 3.0% in June. At the same time, the closely watched core CPI dropped to 4.8%.

Therefore, a pause of rate hikes will help the bank to assess the impact of the previous increases on inflation trends.

Second, silver reacted to the decision by Fitch Ratings to downgrade America from Triple A to Double A+. As I wrote here, Fitch noted that the US was going through one of the toughest periods as debt and interest payments jump. Debt has jumped to over $32 trillion while deficits are expected to keep rising.

The US credit rating downgrade is actually a good thing for silver and gold because of its precious metals characteristics. Many people buy gold and silver as a hedge against an economic collapse in the US.

Third, silver price reacted to the weak economic numbers from China and the US. Manufacturing PMI data published this week showed that the sector is contracting. China’s government was even forced to announce another round of stimulus. Silver is an important industrial metal that does well when the Chinese and US economies are performing well.

Silver price forecast

The 4H chart shows that silver prices have drifted downwards in the past few weeks. It peaked at $25.25 on July 20th. The metal has dropped below the important support at $24.53, the highest level on June 9th.

Silver price has dropped below the 25-period and 50-period moving averages. It has also dropped below the 61.8% Fibonacci Retracement level while the MACD has moved below the neutral point.

Therefore, silver price will likely remain in this range for a while. A break below the key support at $24.03 will point to more weakness. If this happens, the next level to watch will be at the psychological point at $23.50.