Silver Wipes Out Treasury-Led Gains as Hawkish Warsh Tightens Financial Conditions; Attention Shifts to US CPI
Key Takeaways
- •Silver sold off after Fed Chair Warsh's hawkish Jackson Hole speech, erasing gains made since the US Treasury buyback announcement and returning to the key 63.00 support zone.
- •Markets now price roughly a 67% probability of a Fed rate hike in September following Warsh's comments on financial conditions not being restrictive.
- •Only a soft US CPI report appears likely to pull September hike probabilities below 50%, as the Fed is focused solely on slowly progressing inflation.
- •On the charts, buyers may defend the 63.00 support toward 66.70 or the 80.00 handle, while sellers target 55.00 on a break lower.
- •Upcoming catalysts include the US ADP report, Waller remarks, Jobless Claims, ISM Services PMI, and Friday's NFP report.
Fundamental Overview
Silver sold off on Friday after Fed Chair Warsh delivered a hawkish speech at the Jackson Hole Symposium. The key passage came when he said: "I would be hard pressed to describe broad financial conditions as restrictive." Markets read this as Warsh pushing back against the recent easing in financial conditions, which prompted them to tighten again.
That process has extended the corrections in the "debasement" trades, with silver falling back to its pre-US Treasury announcement levels. The metal is particularly sensitive to this dynamic because, unlike a bond, it pays no yield, so higher rate expectations raise the opportunity cost of holding it. Silver also trades with a substantial industrial demand component, which ties its fortunes partly to the economic cycle that Fed policy is trying to manage. Rate hike probabilities for the September meeting have also risen, with markets now pricing roughly a 67% chance of a hike.
Warsh also reiterated that the Fed is focused solely on inflation at this point and noted that progress has been slow. For that reason, only a soft US CPI report appears likely to push the probabilities below 50% and dissuade the Fed from hiking at the upcoming meeting. Should the probabilities remain at or above 50%, the Fed could effectively be forced to hike, since holding steady would send a dovish message and ease financial conditions once again.
Silver Technical Analysis – Daily Timeframe
On the daily chart, silver has fully erased the gains that followed the Treasury buyback announcement after Fed Chair Warsh retightened financial conditions with his hawkish speech. Price is now trading around the key 63.00 support zone. This is where buyers can be expected to step in, with defined risk below the support, to position for a rally into the 80.00 handle. Sellers, on the other hand, will want to see a break lower to add to bearish bets toward the 55.00 level next.
Silver Technical Analysis – 4-Hour Timeframe
The 4-hour chart shows the 63.00 support zone more clearly. Again, this is where buyers will likely enter, with resistance around the 66.70 level as the first target. Sellers will be looking for a break lower to extend the drop into new lows.
Silver Technical Analysis – 1-Hour Timeframe
On the 1-hour chart, a downward trendline defines the bearish momentum. Sellers will likely continue to lean on the trendline, with defined risk above it, to keep pushing toward new lows. Buyers, meanwhile, will look for a break above it to enter for a rally into the 66.70 resistance next. The red lines mark the average daily range for today.
Upcoming Catalysts
Today brings the US ADP report. Tomorrow features remarks from Fed's Waller, along with US Jobless Claims and the US ISM Services PMI. The week concludes on Friday with the US NFP report. These labor and services prints, along with the US CPI report cited above as the key swing factor for September hike expectations, form the calendar that will determine whether the tightening in financial conditions extends or reverses.
