Silver price hit a fresh 12-year high on Tuesday before erasing those gains on Wednesday. At the time of writing, it was trading at $33.63, down by 3.47%.
Geopolitical tensions in the Middle East and uncertainties surrounding the US elections have continued to support the metal’s prices. However, its upside potential is curbed by surging Treasury yields and a stronger US dollar.
Safe haven demand
Geopolitical and economic uncertainties are one of the key bullish factors behind silver price’s recent rallying. To start with, escalated fears over the ongoing conflicts in the Middle East have increased the attractiveness of conventional safe haven assets like gold and silver.
On Saturday, one of three drones that were launched from Lebanon hit Israel’s Prime Minister, Benjamin Netanyahu’s holiday residence. Granted, the prime minister was not on location at the time and no casualties have been reported. The Lebanese Hezbollah group has since claimed responsibility for the attack.
During a news conference on Tuesday, the armed group’s head of media, Mohammed Afif pointed to similar attacks in the future stating that “the coming days and nights and the battle fields are between us”.
Following the Saturday attack, the Israeli military has launched several air attacks on Beirut’s southern suburbs. At the same time, they confirmed the killing of Hashem Safieddine, the presumed successor of Hezbollah’s leader, Hassan Nasrallah who was also killed by the country’s forces.
In addition to these latest events, investors are also keen on the promised retaliatory attack on Iran by the Israeli military. This follows Iran’s ballistic missile attack on Israel’s territory at the beginning of October. While the vengeance has not materialized, there are fears that it will broom into a full-fedged war.
After the attack on Netanyahu’s residence, the prime minister posted a statement on X warning, “Anyone who tries to harm Israel’s citizens will pay a heavy price. We will continue to eliminate the terrorists and those who dispatch them.”
Besides, the country’s defence minister, Yoav Gallant has reiterated that Israel still intends to revenge on Iran. While addressing the military on X, Gallant stated,“…after we attack Iran, everyone will understand your might, the process of preparation and training – any enemy that tries to harm the state of Israel will pay a heavy price”.
It is these warnings and hard stances that have investors purchasing safe haven assets. Gold, which is a conventional safe haven in times of geopolitical and economic uncertainties hit a fresh record high earlier on Wednesday. As is often the case, the rallying tricked to the bullion’s poorer cousin – silver.
In the ensuing sessions, the two precious metals are set to continue finding support in its safe haven status. Besides, jitters over the US elections slated for 5th November will further fuel the rush for these assets.
Stronger US dollar
Even with the heightened safe-haven demand, silver price upside potential is under pressure from a stronger US dollar and rising Treasury yields. The dollar index, which tracks the value of the greenback against a basket of six major currencies, appears set to record its fourth consecutive week of gains. On Wednesday, the greenback extended its previous gains to hit a fresh 11-week high.
Signs of a resilient US economy, coupled with uncertainties surrounding the upcoming US elections, have continued to bolster the dollar. Additionally, recent upbeat economic data, including a better-than-expected September jobs report, have eased expectations of aggressive rate cuts by the Fed in its ensuing meetings. Investors are now increasing their bets for a 25 basis points rate cut; down from the previous 50 basis points.
In addition to boosting the US dollar, the upbeat economic data has yielded a more hawkish outlook for the Fed thus bolstering Treasury yields. At the time of writing, the benchmark 10-year yields had risen to 4.23%; a level last recorded in late July.
The rising US bond yields have increased the opportunity cost of holding non-yielding assets like silver and gold. This explains silver price pullback on Wednesday that saw the precious metal erase its gains from the previous session.
Silver price analysis
Silver price has been in a strong bull run in the past few months. This surge saw it rise to a multi-year high of $34.80. It has moved above the important resistance point at $32.55, its highest swing on May 20th.
Silver has remained above the 50-week and 100-week moving averages. By moving above the key resistance point at $32.5, it invalidated the double-top pattern that was forming.
However, silver has also formed a doji pattern, which is characterized by a long upper and lower shadow and no body. In most cases, this pattern leads to a bearish breakout.
Therefore, silver will likely retreat this week as sellers target the key support at $32.55. Such a move will be positive since it is known as a break and retest, a popular continuation sign.
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