Despite the Fed Rate Hike, Silver Prices Should Continue Bullish Course
The risks weigh heavy on the international arena and rising geopolitical tensions might be bad for the stock market. But they certainly sustain gold and silver prices today. These have become rather interesting havens in which to park investments that would otherwise be subject to rather stormy conditions on Wall Street.
Silver spot prices have fallen in a range from $14.00 to $21.00 per ounce. But demand has outstripped supply. Silver, unlike even gold, enjoys demand from various industries. It is not merely a precious metal or a safe haven when market volatility is high. Solar panels and cellphones need silver, for example.
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But investors have not yet caught on to this fact. Thus, silver remains more susceptible to traditional market performance indicators. One of the factors that has contributed to silver prices moving higher—or at least holding—has been a weaker dollar. Silver prices have gained some three percent and the trend is moving up as the silver chart below shows.
Investors on Wall Street have thrown caution to the wind, pushing the Dow Jones and NASDAQ indices to record highs. Thus, the fact that silver could manage to move higher during this extremely bullish period speaks volumes about its potential. The other positive aspect of silver’s price performance is how it has responded to Janet Yellen and the Federal Reserve.
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Janet Yellen insists on pushing the idea that everything is great in the state of the U.S. economy. She said that the recent disappointing macro data (jobs and gross domestic product growth) seems to be just “temporary.” Thus, the Fed Chair has remained in favor of further gradual rate rises. But of all these factors, perhaps the most indicative of a favorable silver price forecast in 2017 is the course of the dollar.
The dollar has weakened far more than anyone or Yellen herself expected. By the end of May, it had hit the lowest levels of the last six months, wiping out any and all gains it had made after Donald Trump won the election last November. This dollar depreciation has reinvigorated investors’ interest in investing in precious metals like silver.
The dollar is suffering because of considerable geopolitical risk on one hand, but also because the euro, its main rival currency, has been making small but gradual gains. Many European economies have shown improvement. Thus the European Central Bank plans to start raising its own interest rates soon.
Meanwhile, despite Janet Yellen’s optimism, the Federal Reserve may want to hold off raising U.S. rates as the year progresses. The economy has shown various signs of weakness. One in particular should be cause for alarm: retail chains and malls are facing unprecedented changes. The fact that Amazon.com, Inc. (NASDAQ:AMZN) bought Whole Foods Market, Inc. (NASDAQ:WFM) for $13.0 billion was a signal. Jeff Bezos would not have made the move without having calculated that U.S. consumers want to shift to online shopping even for their groceries.
The collapse of retail will mean fewer jobs and less overall demand. Thus, investors will keep their risk aversion at a high level. Political and economic uncertainty can only increase. Trump is being weakened by the “Russiagate” scandal. Thus, his growth-inducing policies risk not following through in Congress.
Still, when the Fed announced a quarterly benchmark interest rate increase on June 14, it did weaken the silver price. Should you be worried? That reaction should have been expected. All dollar-denominated investments want to drop as the cost of money goes up. Still, considering the recent trend for silver and gold, the recent interest rate hikes have proven bullish. Moreover, it’s uncertain how far Janet Yellen can go pushing interest rates.
The inflation figures might be close to the Fed’s target. But, they haven’t really moved higher. In fact, according to recent surveys, consumer price inflation fell to 1.7% in May, when the expectations were for 1.9% growth. That’s not surprising, and the closure of malls and retail stores suggests this is a phenomenon happening well beyond the statistics.
