Silver price to fall to $21 as Fed hikes rates to fight inflation – UBS
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(Kitco News) – The Federal Reserve’s impending decision to raise interest rates by 50 basis points next week continues to weigh on precious metals.
Silver has been a significant underperformer over the past two weeks as prices fell below $26 an ounce. Silver is currently testing support just above $23 and is down 13% since April 18th.
Looking ahead, UBS analysts expect lower prices in the near term. May silver futures last traded at $23.040 an ounce.
“The outlook for higher interest rates will likely remain a headwind for the metal,” said Dominic Schnider and Wayne Gordon, market strategists at UBS, according to the report. “A silver price that is likely to be capped gives investors room to engage in more active strategies. In short, we like to sell the silver price rise for yield.”
The Swiss investment bank is negative on silver as the Federal Reserve attempts to rein in inflation by aggressively raising interest rates. They added that interest rates could rise much further until 2022.
“The Federal Reserve is in inflation-fighting mode for a good reason. High US inflation numbers are an issue that needs the Fed’s full attention. We think that means expectations “Real interest rates have room to move up. In the case of the 10th 1-year US TIPS yield, a move into positive territory marks our base case,” the analysts said.
Not only are interest rates expected to rise, but UBS also expects inflationary pressures to begin to ease by the second half of the year.
“With real interest rate expectations on the rise and real inflation stabilizing in the coming months as economic growth moderates, the backdrop for a rising silver price is diminishing,” said the analysts. “As a result, we expect inflows into silver ETFs to stagnate and begin to reverse once signs become clearer that inflation is turning around more significantly. For the price of silver, this means that a sideways trajectory in 2Q is most likely followed by a pullback, with the metal heading towards 21 USD/oz.”
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