Silver Setting Up For A Big Move Following Fed

Precious metals markets traded into an important technical juncture ahead of Wednesday’s Federal Reserve policy announcement.

Bank of America analysts stated that this week’s meeting is “one of the most critical events for the Fed in some time”.

The Fed faces mounting pressure to intervene in the bond market as yields continue to rise. It will likely reiterate its commitment to keeping its benchmark rate near zero and vow to continue buying at least $120 billion in bonds per month.

Critics of Fed chairman Jerome Powell’s easy-money stance are warning that monetary and fiscal policy are too loose.

The federal government’s recent $1.9 trillion spending package, combined with ongoing “emergency” liquidity injections by the Fed, risk fomenting speculative asset bubbles and sending inflation on a rapid upward trajectory.

Rising fuel and food costs have economists concerned. Conveniently for Fed policymakers, however, their “core” inflation indicator excludes those components.

The traditional inflation hedges of gold and silver haven’t generated much upside confirmation so far in 2021 – at least not in the futures market where spot prices are determined. But bullion demand from investors who are concerned about inflation risk has been quite robust.

Silver’s Potential Breakout Level

Will another round of intense physical buying follow the Fed’s latest pronouncements on rates and the economy?

There is likely nothing on the Fed’s boilerplate that would dissuade investors from buying precious metals. But spot price volatility in either direction is certainly possible in the near term.

Silver in particular appears to be winding up for a big move.

The silver chart shows prices currently being constrained by the 50-day moving average. The trading range is narrowing underneath it.

50 day moving average of silver

One of two outcomes appears to be imminent: Either a big breakout above the 50-day moving average OR a sharp selloff to re-test the $25/oz level and perhaps lower-tier support.

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