The price action in silver thus far this week has been relatively subdued. This could be for multiple reasons including the time of year, lack of clarity on Fed policy, and investors taking a wait and see approach regarding the metal’s recent trading range.
The silver market did not get any help from the Fed last week. The FOMC meeting last week made no mention of the Fed’s plans for tapering, and left many investors wondering what may lie ahead. Although this meeting did not really provide any additional clues as to the Fed’s plans, this week the markets have heard a more hawkish tone from some Fed officials leading to increased speculation that the Fed will begin to wind down its operations sooner rather than later. This is a somewhat bearish factor for the precious metals.
In addition to more hawkish rhetoric, the markets are still seeing data being released that for the most part is still showing an improving economy. The rate of improvement is slow and sluggish, however it does appear to be consistent at this point. This could also be considered bearish for precious metals. The stock market has been very strong in recent months, but could be stalling out currently. Is it all a house of cards getting ready to tumble? It’s just too early to tell.
The big question will be how markets react once the Fed does begin to taper. Perhaps a large scale stock market correction could ignite more buying interest in silver. The other side of the coin is that silver, unlike gold, has more industrial applications and could potentially get a lift from an improving economy. It will be interesting to see just how things play out in the coming months.
Silver for now appears to be content waiting for more clues about the economy and perhaps a catalyst to drive prices one direction or the other. Since the June lows, silver prices have been range bound and have seemed quite comfortable in the $19-$20 area. While the market could stay in this range for a very long time, we feel it is unlikely. The silver bears have gained some momentum recently and are trying to push prices back for a re-test of the June lows. Can silver prices go a lot lower? The answer is yes-they can. Will they ? That remains to be seen.
Physical demand for silver has remained strong throughout the selling the last few months. Perhaps the market has now achieved some level of equilibrium. In the mean time, we will continue to watch the charts and look for the breakout one way or the other. Given current central bank policies, sovereign debt issues, and geopolitical unrest in the Middle East, it is hard to imagine lower silver prices but we must acknowledge that anything is possible.
This market update is provided weekly with analysis. You can always check spot value of silver by watching our on-site charts.