Here’s why the silver price and SLV ETF have slumped

Silver price and the iShares Silver ETF (SLV) have retreated in the past few weeks, moving into a technical correction. Silver dropped to $30.95, while the SLV ETF was trading at $28.20 as the focus shifted to the upcoming Federal Reserve decision.

Federal Reserve decision

Silver and the SLV ETF retreated this week after the US published the November consumer price index (CPI) data.

According to the Bureau of Labor Statistics (BLS), the headline CPI rose slightly from 2.4% in October to 2.7% in November. It was the second consecutive month that inflation rose in the country.

Core inflation, which excludes the volatile food and energy prices, remained at 3.3% as it struggled to drop below 3%.

These numbers remained above the Fed’s target of 2.0%, a trend that may continue in the coming months. 

The data came a few days after the BLS published soft-ish jobs numbers. The agency said that the economy created over 200k jobs in November, a big increase from the 30k it created a month earlier.

However, the labor participation dropped slightly, while the unemployment rate rose to 4.2%. These numbers mean that the Federal Reserve will likely continue cutting interest rates in its last meeting of the year.

Silver often reacts to the actions of the Fed because of its close relationship with gold. Indeed, gold price has also retreated to $2,685, down from the year-to-date high of $2,790. Gold and silver tends to do well when the Fed and other central banks are cutting rates.

Other global central banks have embarked on a rate-cutting cycle. The Bank of Canada slashed rates by 50 basis points this week, while the European Central Bank delivered a 0.25% cut and hinted that more were coming.

Why silver is falling

There are three main reasons why silver price has crashed in the past few weeks. First, there are signs that institutional investors are no longer buying as they did a few months ago. Data shows that the iShares Silver ETF has shed assets in the last two consecutive months. Its total inflows this year stood at over $838 million.

Second, silver price has also plunged because of the rising US dollar. The US dollar index has jumped to $107, its highest level since November 26. It has risen by almost 7% from its lowest level this year. Silver often drops when the US dollar is rising since it is quoted in the currency.

Third, there are signs that silver demand is falling as some key economies slow. India, a key buyer of precious metals, is no longer growing as it did a few months ago. Recent data showed that the economy grew by just 5.4% in the last quarter, missing estimates badly. 

There are also concerns that the Donald Trump administration will have an impact on global trade. He has already pledged to impose large tariffs on Mexican, Canadian, and Chinese trade.

Silver price forecast

The daily chart shows that the price of silver has been under pressure after topping at $34.84 in October. It has moved into a correction after falling by about 11% to the current 31. 

Silver has already moved below the 50-day moving average and the crucial resistance point at 32.47, its highest level on May 21. 

It remains above the ascending trendline that connects the lowest swings since February 14. It has also remained above the 200-day moving average.

Therefore, odds of silver and the SLV ETF bouncing back are still high. A fully bearish breakout will be confirmed if the price moves below the ascending trendline and the 200-day moving average at $29.35.