Silver prices are slightly higher today while gold is slightly lower. Crude oil prices are lower, as well as the dollar index. Stocks have undergone a large reversal today and are moving sharply lower as of this writing.
Markets are digesting the latest move by the People’s Bank of China, which overnight lowered its currency’s peg to the dollar to the lowest level in four years. While this latest move by China may give economic activity a boost, it also points to ongoing economic softness.
As the U.S. prepares for its first interest rate hike in nearly a decade, concerns over global deflation appear to be mounting. Some recent data has suggested a softening in prices and one need only look at crude oil and copper, for example, to see deflationary pressures at work.
The crude oil market has once again become a major topic of discussion as prices have fallen firmly below the $40 per barrel mark. As OPEC continues to pump 31.5 million barrels of oil per day, the pressure on oil prices is not likely to let up anytime soon. The longer oil prices remain low, the more competition that will be wiped out.
The slide in oil prices could still have a significant ways to go. While $30 per barrel right now seems like a very plausible target, oil could even slide down to $20 per barrel over the next year or so as the market remains oversupplied.
Lower crude oil may weigh on gold and silver prices as the threat of inflationary pressures is currently benign while deflation becomes the focus.
Investors are also awaiting the FOMC meeting set for December 16th at which time it is expected that the central bank will raise interest rates. While such a move would not come as a surprise to markets at this point, the possibility of a knee-jerk reaction still exists.
After climbing by about $.75 per ounce in recent days, silver may be vulnerable to another sell-off as lift-off occurs. Such a sell-off could, however, potentially find a bottom in silver prices.
The dollar index is continuing to slide today and a near-term top may be in place. Although precious metals are not showing much reaction to the lower dollar today, further weakness in the greenback could potentially give the precious metals complex a boost.
While markets may remain somewhat subdued until the FOMC meeting, the potential for volatility going into the Fed announcement exists.