Silver ETF inflows bolster momentum ahead of Fed meeting

Silver price is on track to its second-best year on record as tight supplies and heightened demand continue to bolster the dual-purpose metal. On Friday, the white metal hit a fresh record high amid a surge in ETF inflows. While it has since pulled back, the bullish momentum remains steady ahead of the Fed meeting later in the week. 

Beyond the expected rate cut of 25 basis points, investors will be looking for cues from the FOMC statement on the central bank’s possible course of action in coming months. A more hawkish tone would weigh on precious metals, even as supply tightness in the physical silver market bolsters prices. 

Silver price steadies near record high amid heightened ETF investment

Silver has had a spectacular year; doubling its value compared to gold’s 60% surge. Late last week, it hit a fresh all-time high as increased ETF inflows highlighted investors’ expectations that the white metal will rally further. 

In the past week, the total holdings of silver ETFs increased by close to 590 metric tonnes. On a broader scale, the demand for ETF investments has risen in 9 out of the past 11 months. In November alone, ETF inflows were at 15.7 million ounces; the highest since July. These figures are an indication of steady investor interest.

The soaring ETF inflows is a trend expected to continue in the ensuing months as economic uncertainties and geopolitical risks fuel the metal’s safe haven appeal. Additionally, increased industrial demand and structural supply shortages continue to support silver price. On the one hand, the metal has been in a deficit for five years now. At the same time, the demand for electric vehicles, medical technology, and solar panels continues to soar.

While these price drivers are set to support the bullish momentum in the ensuing sessions, the focus will particularly be on the Fed meeting slated for 9th and 10th. Beyond the 25-basis-point interest rate cut that is already priced in, the central bank’s tone will influence market sentiment. A hawkish tone may curb silver price upside potential as it strengthens the US dollar. In a note, an analyst told Invezz:

SLV silver price technical analysis

The iShares Silver Trust ended last week in the green; hitting a fresh all-time high before pulling back slightly. The bullish momentum has been sustained by supply tightness and expectations of a Fed rate cut before the end of the year.

In the immediate term, the silver ETF may remain within a tight range, failing to attract enough buyers to retest the record-high hit on Friday. As such, the range between $53.30 and $51 will be worth watching. 

Depending on the tone in the FOMC statement, signals that the central bank will pause on further rate cuts in the coming months may yield a pullback to $49.73; a previous resistance zone that has offered steady support to the asset since late November.

On the upside, a more dovish tone may have SLV silver price break the resistance at $54.15 as the bulls eye fresh heights of $56. For as long as the ETF remains above $48, which is along the middle Bollinger band and the short-term 25-day EMA, this bullish thesis will be valid.