SLV ETF: Silver price is at risk as a dangerous pattern forms

Silver price recorded its first week of gains after being in the red for four weeks in a row. Similar to its more lustrous cousin, gold, silver has been benefiting from the intensified attacks that have seen the Russian president update its nuclear doctrine and threaten the West. 

Even so, it remains in a consolidation phase amid a stronger US dollar. Just like silver, the greenback has also been bolstered by its heightened demand as a conventional safe haven. Besides, investors are hesitant to short the asset as they await additional cues on the Fed’s rate cut cycle. 

The iShares Silver Trust (SLV) ETF was trading at $28.50, down by 10.5% from its highest level this year, meaning that it is in a correction.

Safe haven demand

As a conventional safe haven asset, silver price is finding support in the heightened tensions in eastern Europe. Similarly, the metal’s more lustrous cousin, gold, is set to end the week in the green after two weeks of losses. These gains have been bolstered by Putin’s threats to the West. 

On Thursday, Russian President Vladimir Puttin stated that its war with Ukraine is escalating into a global conflict. This is after Ukraine attacked Russian territory with US-made ATACMS on 19th November followed by US-made HIMARS and British Storm Shadow missiles on 21st November. 

In response to Ukraine’s attack, Russia attacked a Ukranian military facility using a new type of hypersonic medium-range ballistic missile while warning that more could follow. 

During a state address, President Putin reacted to the involvement of the West stating: 

“…as we have repeatedly underscored, a regional conflict in Ukraine previously provoked by the West has acquired elements of a global character. And in case of escalation of aggressive actions, we will also respond decisively and in a mirror manner.”

US dollar index is rebounding

The heightened safe haven demand that has bolstered gold and silver prices have also boosted the US dollar. Similar to the precious metals, the greenback’s demand increases in times of economic and geopolitical uncertainties. In fact, this two-faceted factor is largely what has maintained silver price in consolidation. 

The dollar index, which measures the value of the greenback against a basket of six major currencies, appears set for the eighth consecutive week of gains. Earlier on Friday’s session, it reached a fresh two-year high at $108.06. 

In addition to its safe-haven demand, the US dollar is finding support in speculations over the Fed’s rate cut path; an aspect that has been curbing silver price gains. To begin with, the currency has been up by close to 4% since Trump won the US presidential elections of 5th November. 

Investors are concerned that his proposed policies may reignite inflation, thus tempering Fed’s rate cuts in the foreseeable future. This includes his pledges to impose hefty tariffs on exports from China and the Euro bloc. 

At the same time, Jerome Powell recently remarked that the US economy is performing “remarkably well” , offering no signs that the central bank should be in a hurry to continue lowering interest rates. 

While economists are still betting on a 25 basis points cut in December, more of them are pricing in a slower rate reduction cycle in 2025. As such, investors are hesitant to short the US dollar; an aspect that is set to continue exerting pressure on silver price.  

SLV ETF analysis

The daily chart shows that the SLV ETF peaked at $31.8 in October and has dropped to $28.47. It has now dropped below the 23.6% Fibonacci Retracement level. It is also moving between the 100-day and 50-day Exponential Moving Averages (EMA).

The iShares Silver ETF has formed a rising broadening wedge pattern, which is a popular bearish sign. The fund has also formed a descending pennant pattern. 

Therefore, there is a likelihood that the SLV ETF will have a bearish breakout, with the next point to the 50% Fibonacci Retracement point at $25.40. This view will be invalidated if the fund rises above the key resistance point at $30.