Silver prices are trading slightly lower today and are attempting to stay above the $14 per ounce level. Weaker crude oil and weaker gold are not doing silver any favors today, while a stronger dollar index is also making life difficult for the silver bulls.
While Friday’s non-farm payrolls data for November will take center stage this week, today’s ADP employment report came in better than expected and may fuel speculation on a strong report Friday.
It should be noted, however, that the ADP data and the non-farm payrolls data have often exhibited some divergence, and that just because the jobs data today was better than expected does not mean that Friday’s data will also beat consensus estimates.
Nevertheless, signs continue to point to a labor market that is gaining some traction. Last month’s non-farm payrolls data likely sealed the deal on a rate hike this month, and barring any major downside surprises in Friday’s numbers, a rate hike this month is extremely likely.
Silver and gold have been under pressure as the first rate hike in nearly a decade looms. Stocks, on the other hand, have continued to exhibit strength. While this equity strength could continue, and may very well into the end of the year, at some point stock investors may begin to hit the sell button as rates get set to rise further. It is difficult to imagine silver putting together any significant, sustainable rally in the face of strong equities.
Also weighing on silver is the recent strength in the dollar index. The greenback has been on the rise based on the notion of higher rates. As the U.S. gets ready to hike, other areas, such as the ECB, are getting ready to introduce additional stimulus measures.
This divergence in policy could potentially set the stage for increasing volatility, especially in currency markets and interest rates. At some point, dollar strength may become more of a concern as U.S. companies are forced to deal with higher currency values.
Any way you slice it, there are certain risks that come along with such a divergence in policy, and while these risks can potentially cause significant economic problems, they can also be managed.
In the meantime, silver looks potentially poised for another leg lower in price. Both silver and gold may see another, perhaps final flush lower before finding more stable footing. Such a move could be seen going into year’s end and in the first quarter of next year.