Silver prices have basically been treading water this week until about five minutes ago when the latest Fed decision was released. To the market’s surprise, the Fed has elected NOT to taper-at least for now. By a vote of 9-1 the Fed has decided to continue its $85 billion per month bond purchases. This move came as a bit of a shock considering that the majority of economists predicted we would see a decision to taper today in the neighborhood of $10 to $20 billion.
Gold and silver took off to the upside immediately following the announcement as the U.S. dollar index slumped and the Euro took off. SP500 futures shot up as well, trading higher by as much as 17 handles or so in the last few minutes. Ben Bernanke will be holding a press conference in about 15 minutes to discuss the Fed decision and the economy. After the Fed’s lack of action today, it appears he will have some serious questions posed to him.
Clearly the decision not to taper is a precious metals positive and a stock market positive. The equities markets like the idea of continued easy money and are cheering this decision on. One does have to wonder however, why the Fed has decided not to begin tapering yet.
The Fed has alluded to unemployment, rising interest rates, and government spending cuts as being a significant drag on the economy. The Fed stated that essentially it will take a wait and see approach and wants to be more certain that the economic progress can be sustained before it begins to remove stimulus. This leaves one wondering when the Fed may begin to cut its bond program down. Perhaps November?
The announcement caused the U.S. dollar index to plunge, taking out its recent lows in the process. This sets the stage for more dollar weakness and thus the potential for more precious metals strength.
Looking at silver prices, the market has popped directly to its 9 and 20 day EMAs and as of this post is also back above the key 50 day EMA. In addition, silver has now made an outside day on the daily chart which may lead to more short covering and additional fresh longs entering the market especially given the current circumstances.
Should silver prices be able to break above the 20 day EMA here at the $22.65 area we feel that the metal will once again target its 200 day EMA which is currently just shy of the $25 level. Although silver and gold are sharply higher right now based upon this news, it is very important that follow through buying is seen in the coming days and that the rally proves it has legs.
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