March Comex silver (SIH26) futures today hit a record high of $62.14 an ounce. Price action in silver this week has produced a bullish upside “breakout” from a bull flag pattern on the daily bar chart. Measuring implications from this pattern project an upside price target of around $70.00 in the coming weeks, or sooner. Indeed, silver bulls are presently enjoying a potent elixir of bullish charts and bullish supply and demand fundamentals, including an expected interest rate cut today from a major central bank.
The U.S. Federal Reserve’s Open Market Committee (FOMC) meeting that began Tuesday morning ends this afternoon with an FOMC statement and then a press conference from Fed Chair Jerome Powell. Markets have priced in a 90% chance of a 0.25% interest rate cut from the Fed. However, the FOMC statements and Powell’s guidance on the trajectory of Fed monetary policy are what the marketplace will be very closely watching today. Market expectations have grown that the FOMC and Powell will lean more hawkish on U.S. monetary policy due to worries about sticky inflation. That’s a bearish element for the precious metals markets.
Buy the Rumor, Sell the Fact in Silver
I’m going to throw a monkey wrench, at least for the near term, into the bullish gears that are presently driving silver prices into the stratosphere.
I would not be surprised to see silver (and gold (GCG26)) sell off just prior to, or shortly after, the conclusion of this afternoon’s FOMC meeting. Such an occurrence would be a classic “buy the rumor, sell the fact” scenario. I would also not be surprised to see the FOMC statement and Powell lean surprisingly hawkish on future U.S. monetary policy. Why? Recent U.S. economic releases have been a mixed bag — some showing weakness and some showing strength. Importantly, U.S. inflation, while not deemed problematic, remains just above the Fed’s target range of around 2% annual inflation.
Global Bond Market Vigilantes Lurking, and Metals Traders Taking Note
Rising bond yields are the enemy of precious metals bulls. The metals provide no annual dividends, but rising bond yields offer better annual, guaranteed payouts to investors.
Global bond yields have risen to highs last seen in 2009, signaling concerns that interest-rate-cutting cycles from major central banks may be ending soon, according to a Bloomberg report. Yields on a Bloomberg gauge of long-dated government bonds have hit 16-year highs. Money market bets are underscoring that traders are pricing in virtually no more rate cuts from the European Central Bank. “Bond investors are now mulling the outlook for global growth, examining inflation risks amid trade tariffs and surging government debt. Even in the U.S., where the Fed is expected to cut rates today, the outlook is rapidly evolving,” said the report. “Yields on 30-year Treasuries have climbed back to multi-month highs as investors eye a less benign outlook for monetary policy, inflation and fiscal discipline. The market shift reflects growing conviction that the interest-rate-cutting cycle, introduced last year to spur economic growth and has in the process propelled global stocks to record highs and boosted bond prices, is ending soon.”
In a Rare Occurrence, Silver Leading Gold
In my 40-plus-year career of reporting on the commodity markets, including metals, I cannot think of another time when gold traders were looking so closely at the silver market for daily guidance on price direction. I think such will continue to be the case for the next few weeks.
I’m still bullish, overall, on gold and silver, longer term, based on the bullish longer-term technicals that remain in place.
However, I think with the silver market presently being arguably very extended, it’s time for some consolidation and a pause from the strong and record-setting bull market run. If silver prices pull back significantly today, it could be the beginning of that price consolidation and downside corrective selling. Today is an extra important day for silver, and in turn, gold. Stay tuned!
Tell me what you think. I really enjoy getting emails from my valued Barchart readers all over the world. Email me at jim@jimwyckoff.com.
On the date of publication, Jim Wyckoff did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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