The US Treasury Secretary is calling for a 50-point interest rate cut? Behind the rise in silver, there are hidden risks

On Thursday (August 14) in the Asian market, spot silver continued Wednesday's rally and is now trading around $38.58/ounce, an increase of about 0.28%, approaching the nearly two-week high set overnight. On Wednesday, spot silver rose by 1.63%, boosted by market bets that the Federal Reserve will cut interest rates and the U.S. 10-year Treasury yield plummeted.

Spot silver prices touched $38.65/oz on Wednesday, setting a new 13-session high; the next resistance level is at 39.00, followed by a high of 39.53 for the year. If 38.00 falls below, downside risks are at 37.50 and 36.21. On Wednesday, silver prices rose more than 1.63% as the dollar weakened across the board and traders have fully digested expectations of a rate cut at the Federal Reserve's meeting next month. As a result, the yield on US Treasuries, which are inversely correlated with spot silver, fell five basis points to 4.236% with the 10-year benchmark.

(US 10-year Treasury yield chart)

In an interview on Wednesday (August 13), U.S. Treasury Secretary Vincent Bescent said that the Federal Reserve's interest rate should be 150-175 basis points lower than it is now, and that if the data were accurate, the Federal Reserve could have cut interest rates earlier. Bescent believes that the Federal Reserve has the possibility of cutting interest rates by 50 basis points, and a series of rate cuts could start from the 50 basis points cut in September.

Referring to the Fed chair, he said they would cast a wide net of 10-11 people, adding that he had proposed a "shadow Fed chair" but now saw no need for it.

In addition, Bescent believes that the Federal Reserve does not need to resume large-scale asset purchases (QE). When talking about the employment report, he expressed that he does not support stopping the release of the employment report, but stressed that reliable data is needed. Some analysts say that the possibility of the Federal Reserve cutting interest rates by 50 basis points in September is now almost zero. To achieve this, we will probably need another weak non-farm payrolls report in September

Technical analysis:

The silver rally remains intact, with silver hitting a three-week high of $38.65. Buyers cleared the rebound high on the previous silver decline path before challenging $39.00. They are looking at this year's all-time high of $39.53. From a price action perspective, if these two prices are attacked or even broken through, the gray metal could test $40.00 in the near future.

As shown by the Relative Strength Index (RSI), momentum is bullish. However the MACD position is on the low side and there is a divergence risk for the price to continue upwards. If something goes wrong, a drop in spot silver below $38.00 could put pressure on the bulls and the bears could challenge the recent cycle low of $37.50, the low of August 12. If this level is broken, the next area to watch will be the swing low of $36.21 on July 31.

(Daily chart of spot silver, source: Internet)

At 9:53 Beijing time, spot silver was quoted at $38.59 per ounce.