Silver Price Prediction – Prices Drop Following Fed Decision

Silver prices dropped as yields moved lower as Fed delivered a dovish hold. While benchmark interest rates remain unchanged, the Fed announced that they plan to reduce the volume of bonds they purchase each month, effectively tapering their quantitative easing. The Fed also said that the economy has progressed, but travel and leisure has been constrained due to the pandemic. The Fed also mentioned the supply chain disruptions that have led to elevated levels of inflation.  The Fed expects stronger growth in the future as more vaccines are rolled out and the number of COVID cases falls.

Technical analysis

Silver prices dropped sharply, falling below support which is now resistance is seen near the 50-day moving average at 23.38. Short-term momentum is negative as the fast stochastic generates a crossover sell signal. Prices are oversold as the fast stochastic is printing a reading of 12, below the oversold trigger level of 20. Medium-term momentum has also turned negative as the MACD (moving average convergence divergence) index generated a crossover sell signal. This scenario occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses below the MACD line). The MACD histogram is printing in negative territory with a downward sloping trajectory which points to lower prices.

The Fed Announced the Reduction in Bond Purchases

The Fed kept short-term interest rates unchanged. The Federal Reserve announced Wednesday that it will begin to taper its monthly bond purchases in November. The process will see reductions of $15 billion each month,  $10 billion in Treasurys and $5 billion in mortgage-backed securities,  from the current $120 billion a month that the Fed is buying. The Fed also said that it believes that inflation is expected to be transitory.