This week is all about the Fed… Investors have been anxiously awaiting this afternoon’s FOMC meeting announcement looking for more clues from the central bank regarding its plans on interest rates.
The cat is now out of the bag and the central bank has once again elected to sit for the time being. This did not come as much of a surprise, as many seem to believe that the Fed will not hike rates until next year.
The Fed did, however, add some new language to its statement which now has markets considering the likelihood of a boost in rates in December. In its statement, the central bank stated it would determine “whether it will be appropriate to raise the target range at its next meeting.”
This could very well be a signal by the Fed to markets that a hike is likely to come in December. This would seem to make sense, after all, since the central bank has stated previously that it would look to initiate lift-off sometime before the end of the year.
Although the economy has showed signs of slowing in recent weeks, and there are other areas of concern, such as China, the Fed appears to be thinking that a rebound in economic activity will take place between now and year’s end.
Following the Fed’s statement, the dollar index moved higher while stocks moved lower. In what could potentially be a sign of underlying strength in the precious metals complex, both gold and silver did not show much reaction to the Fed announcement. It would seem that precious metals investors are content knowing that a rate hike is on the way — whether in December or after — and are not afraid of a hike. While silver did drift a little lower following the announcement, the market has held most of its gains for the day. Recent technical momentum in silver could be indicative of further upside. The silver market has broken out of its recent trading range to the upside and sharply higher prices could potentially be in store.
Also encouraging for the silver bulls is the fact that silver is not being sold off, even as the dollar moves higher.
If stocks begin to falter on the notion of higher rates, silver could potentially stand to benefit as investors seek out alternatives.
Bullish technical momentum and significant improvement in investor sentiment may keep a floor under silver prices for the time being as the bulls attempt to drive prices further away from recent lows.