Silver prices are moving slightly lower today as gold and oil prices drop, while stocks and the dollar index move higher. There appears to be a degree of risk appetite in the marketplace today, and this lack of risk aversion may potentially weigh on precious metals.
Silver has been trending slightly higher since trading around the $14 per ounce mark two weeks ago, although the market still appears to be lacking any real bullish interest.
Markets were closed on Monday for the Labor Day holiday and the rest of the week is fairly light from a data release standpoint. Markets are anxiously awaiting the highly anticipated FOMC meeting announcement to be released September 17th.
Given the uncertainty surrounding the Fed announcement, markets may find themselves in a holding pattern until the statement is released. While just several weeks ago a rate hike by the Fed this month seemed likely, those expectations have dwindled as market volatility has picked up and concerns over the Chinese economy have increased dramatically.
The Chinese Government, however, recently announced it would implement additional measures in an attempt to boost economic activity. It remains to be seen, however, if such measures will prove effective. Previous aggressive measures taken by Beijing did not have the desired effect, and markets have thus far remained volatile.
Crude oil weakness may weigh on the precious metals complex as the market makes another run at recent lows. The current rally in oil, while sharp and fast, appears to be quickly running out of gas as oil approaches the $45 per barrel level. Concerns about China may continue to weigh on the commodity sector, and if oil slips further, it could potentially drag silver down with it.
One has to wonder just how much more potential downside could be in store for silver. Production cuts are already in place and demand for physical silver remains strong. While some may believe that a rate hike may be bearish for silver, one could also make the argument at this point that the market could be in a position to rally in spite of a rate hike. With a rate hike, the uncertainty would be removed and the Fed may potentially provide further clues as to the timing or extent of additional hikes.
Stocks could potentially weaken once the central bank does take action; further weakness in equities could potentially give silver and the precious metals complex a boost as risk aversion takes hold. On the other hand, if stocks regain ground lost recently and approach the recent highs once again, precious metals may continue to struggle as investors flock to risk assets.