Silver Rallies on Fed’s Assurances

- March 16th, 2010

A weakened dollar, persisting debt worries in the euro zone, anticipation over today’s upcoming Fed statement, and an improved industrial outlook are all benefiting the price of silver.

By Melissa Pistilli—Exclusive to Silver Investing News

fed-reserveAfter closing with a very modest 0.4 per cent gain to $17.11 an ounce Monday, silver rallied as high as $17.49 an ounce in early morning New York trading Tuesday following gold’s lead. A weakened dollar, persisting debt worries in the euro zone, and anticipation over today’s upcoming Fed statement are pushing precious metals higher. Silver is also said to be benefitting from an improved industrial outlook.

While analysts say the white metal could hit the $18 level this week, prices for the most part are expected to trade sideways.

All Eyes on the Fed

Investors were waiting to here the Fed’s statement on interest rates due out later today. As expected, the US Federal Reserve will leave interest rates at zero, but the market is mainly concerned with the timing of a future rate hike. A rising interest rate would benefit the dollar and in turn pressure gold and silver prices.

Some believe a rate hike may be coming sooner rather than later “following a string of recent economic statistics that indicate that job destruction is probably over and that such a tectonic shift in the American labour landscape will be the catalyst for the rate-180 that the Fed is expected to undertake,” points out Jon Nadler. Despite the Fed’s assurances today, interest rates will have to rise eventually and the action will no doubt have a negative impact on the gold price as well as silver. The question is: how much?

Continuing Debt Concerns

Despite attempts by some European officials to downplay Greece’s credit crisis, the market isn’t buying it; especially as other nations like the UK and Italy are on the brink of faltering. And now Greece and Portugal aren’t the only countries in danger of credit rating downgrades; Moody’s has warned that the US and the UK are in danger as well. Fears over sovereign debt in the euro zone and the US benefit precious metals as investors turn to safe haven assets.

Analysts are also pointing to positive sentiments over industrial demand as a contributing factor to silver’s recent price performance. “Consumer spending on several silver-bearing items such as flat panel televisions, batteries, and cell phones has been reviving,” reports CommodityOnline. However, there are concerns economic recovery will move at a snail’s pace.

Silver as Currency

It seems silver’s historical role as a form of currency is making a comeback in certain parts of the US. News agencies are reporting that Idaho lawmakers approved a bill this week that would allow residents to pay state tax bills with an official state silver medallion in lieu of cash.

While on one hand some are saying the bill’s intention is to stimulate the state’s languishing silver mining industry with tax breaks for companies processing silver ore into the medallions, the bill’s author, Republican Rep. Phil Hart, seems to have had a much larger purpose in drafting the legislation.

According to the Associated Press, Rep. Hart “told the House State Affairs Committee that consumers should rely less on money printed by the federal government because inflation will diminish its value.”

Idaho is not the first state to make a move toward precious metals as a currency. Last month, a South Carolina lawmaker introduced a bill to ban the dollar and replace it with gold and silver. Last year, Georgia legislators also considered a bill that would allow residents to pay taxes with gold and silver.

Silver Miners Making Gains Along With Silver Price

The silver price has gained $4.55 an ounce, or 35.3 per cent, since this time last year and has fuelled some significant gains in silver mining stocks as well. A selection of silver miners posting gains of over 100 per cent from March 16, 2009 to March 16, 2010 include:  Alexco Resource Corp. [TSX: AXR] up over 142 per cent to $3.44 a share, Coeur [NYSE: CDE] up 158 per cent to $16.77 a share, Great Panther Resources [TSX: GPR] ] up over 133 per cent to .91 cents a share, Hecla Mining [NYSE:HL] up over 294 per cent to $5.76 a share, IMPACT Silver Corp. [TSX.V: IPT] up 138 per cent to $1.19 a share, and Silver Quest Resources [TSX.V: SQI] up 1200 per cent to .52 cents a share.

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