Spot silver prices fell sharply on Wednesday, September 17, giving up recent gains as traders locked in profits ahead of the Federal Reserve's interest rate decision. The sell-off confirmed a bearish reversal from Tuesday's high of $42.97, signaling a possible short-term top. After briefly dipping to $41.14, where weak long positions were quickly liquidated, prices are currently hovering around $41.96.



Technical Analysis: Keep an eye on these key levels

Silver's current consolidation is technical in nature, but momentum has shifted to the downside. A sustained break below $41.68 could trigger a deeper sell-off, targeting the key double bottom area of $40.73-40.40. A break of this area would place traders on the lookout for the 50% retracement between $39.96 and $39.59. The 50-day moving average at $39.01 remains a key trend indicator and key support level to watch.

To reignite the bullish trend, silver must decisively break through $42.97. Such a move would not only negate the bearish pattern but also reopen the path to challenge the multi-year resistance level of $44.22.

Semiconductor demand and a weaker dollar support the long-term outlook

Despite the recent pullback, spot silver is still up 46.47% this year, slightly below the 47.7% gain in 2020. However, in absolute terms, silver has surpassed its 2020 high, reaching a 14-year peak. Strong demand from the semiconductor industry and safe-haven buying have driven this rally, making it comparable to the peak of the pandemic's uncertainty.

Meanwhile, the US dollar index (DXY) rose 0.10% on Wednesday, putting short-term pressure on metal prices. However, the dollar remains weak in the long term. Investor pessimism stemming from global trade disruptions and concerns about the Federal Reserve's independence are driving safe-haven flows into gold and silver.

Gold's rise provides support for silver bulls

Gold's 38.8% gain this year, its strongest performance since 1979, has added momentum to silver. Inflows into gold-backed exchange-traded funds (ETFs) and a bullish forecast from Deutsche Bank have further bolstered support. Rising gold prices tend to attract retail investors to silver, which is seen as a cheaper alternative.

According to Dow Jones Market Data, the current gold-silver ratio is 86, well above its 50-year long-term average of 63 and its 20-year average of 70. Historically, such a high ratio means that silver is undervalued, and if gold continues to perform strongly, silver is expected to have room to rise.

Silver Forecast: Support level emerges, focus on the Fed's statement



Traders are bracing for a rate cut from the Federal Reserve (and more importantly, guidance from Chairman Powell). The tone of the Fed's comments could determine whether silver regains bids above $41.68 or continues to retreat to deeper support.

If the Fed sends a dovish signal and gold breaks out in a bullish direction, it could push silver back up towards $44.22. Conversely, if a hawkish surprise occurs, silver could drop to $40.40 or even $39.01.

Although silver is currently in a correction phase, the long-term bullish logic remains unchanged.

At 22:05 Beijing time, spot silver was quoted at $41.967 per ounce, down 1.33%.