Silver markets initially fell on Tuesday to reach below the $25 level. While this initially looks like a very negative turn of events, it should be noted that the market has since turned around to form a bit of a hammer. This obviously is a very bullish candlestick, and therefore it will be interesting to see how this plays out from here.
Keep in mind that the silver market is very volatile, and we have the Federal Reserve meeting that is going on currently. The announcement will come out on Wednesday afternoon, and it is anticipated to be a 25 basis point hike. The question at this point is going to be whether or not the Federal Reserve sounds like they are going to continue to be aggressive with monetary policy. If they are, that will more than likely be negative for silver as the US dollar could go higher. Nonetheless, this is a market that I think you need to be cautious with simply because of the potential of volatility.
If we close on Wednesday above the $25.50 level, then I think we have a real shot at recovering completely. If we close below the bottom of the candlestick for the trading session on Tuesday, then I think silver will more than likely go looking towards the $24 level. I do believe that this is a market that will continue to show choppy volatility regardless because that is the nature of silver and markets in general right now.
Once we get through the Federal Reserve announcement, that could give us a bit of a “heads up” as to where the US Dollar Index is going to go, which is important considering that historically speaking it has a high negative correlation to this market. It must be said that we have sold off quite drastically, but we have also bounced at the previous high, so it does suggest that perhaps there is a little bit of “market memory” at play currently. That could very well open up the possibility of a move higher, but we will have to get through the minefield of Wednesday afternoon before we can truly put money to work. Regardless, keep your position size small, because things are going to be very noisy.