Silver testing bullish commitments at a critica level, eyes on Fed’s Powell this week

• Silver has been tempting bulls in at a discount, but the week ahead is crucial with the Jackson Hole.
• Bulls have given way to a test of trendline support, but bears need to get below $26 if they want to make a material impact on the market.

The price of silver is failing at trendline resistance and is currently testing the lower end of the range in the $26’s as the US dollar firms.

At the time of writing, XAG/USD is trading at $26.4394 between a range of $26.4435 and $27.2426.

There is not much in the way of news at the start of the week besides the slowly developing stories in geopolitical headlines, the coronavirus and stimulus measures affecting market sentiment. 

The spread of the coronavirus in Europe and Asia is concerning, yet markets remain optimistic that stimulus will get the global economy back on track, alluring bets away from the US dollar, dampening yields and supporting precious metals.

Eyes on the Fed

The Federal Open Market Committee minutes, last week could be argued to have been slightly less dovish, bordering on somewhat hawkish in some regards.

However, the plain message in sight was that for persistent uncertainties pertaining to the spread of the virus and ongoing stimulus. 

For precious metals this week, and the US dollar for that matter, there will be a focus on Federal Reserve’s Chair Jerome Powell’s and his keynote address on Thursday at the virtual Jackson Hole symposium.

We expect the Fed Chair to effectively pre-announce the outcome of the Monetary Policy Framework Review, which suggests the formal adoption of average inflation targeting.

As a result of this review, precious metals could find support in a change in forward guidance to make clear that the Fed wants inflation to run above the 2% goal as a make-up strategy,

analysts at TD Securities explained. 

While such an announcement by no means would constitute a ground-breaking surprise, the effects of such a policy may not yet be fully priced.

The analysts at TDS are of the mind that any further weakness in the complex would constitute a buying opportunity.

Silver is remaining our precious metals favorite, as a clean positioning slate, rising industrial demand, ultimately resilient investment demand, and inventory constraints should maintain momentum to the upside.  

Silver levels

From a daily perspective, the price is testing below the rising dynamic trendline support.

However, there is a support structure that could hold up the price resulting in a bearish fake-out.

The price could well break back into the $28 level and inspire bulls back into play.

On the other hand, a break below the support structure opens risk to a 38.2% Fibonacci retracement level and prior resistance of late July business.

Overall, the technical picture remains bullish above a 50% mean reversion level, an area that has already been tested.