Silver prices are up over $.40 per ounce this morning as oil rallies, stocks futures are flat and the dollar moves slightly lower.
The buying being seen in silver today is likely nothing more than position squaring ahead of tomorrow’s FOMC announcement. Many investors are also likely choosing to step aside ahead of the meeting and take a “wait and see” approach.
This week’s FOMC meeting has significant market moving potential and may be the most important data point in some time. While speculation about rates has shifted over the last several weeks, one could say that tomorrow’s decision by the Fed is simply a coin flip. While a rate hike seemed likely a few short weeks ago, recent volatility seen in China and other equity markets may potentially keep the Fed on hold — for now anyway.
While anything is possible, should the Fed hike rates tomorrow it could potentially drive selling in equities and could potentially boost silver and precious metals. While the assumption is that a rate hike is bearish for precious metals, the silver market has likely long considered an initial hike by the Fed at this point and it may have already been discounted by the market. If stocks begin to show significant weakness in the coming weeks based on a hike, then silver could potentially stand to benefit from risk aversion.
On the other hand, if the Fed decides to hold off on hiking, it could potentially give silver and other precious metals a boost. Such a boost could prove to be only temporary, however, and the market will still have to deal with higher rates at some point in the future. Stocks could potentially rally sharply if the Fed remains on hold, and appetite for risk could also possibly weigh on silver and the precious metals complex. However, possibly counteracting this, the dollar index could potentially give up ground if the Fed waits and give silver a short-term boost.
Silver remains in a downtrend, although the market appears to be trying to level off. This may be due to solid physical demand and production cuts altering the supply/demand balance. While further downside cannot be ruled out, silver is showing some signs of a possible bottom and could potentially stage a significant rally from current levels.
Market action in the near-term will likely be dictated by the FOMC announcement and overall risk appetite or aversion. The market may, however, tip its hand and make a significant directional move in the near future.