Precious Metals

Silver Investing

Following two days of meetings, the Fed, led by Chairman Jerome Powell, made the decision to increase interest rates to 2.25 percent, sending the US dollar up and the price of silver down.

After two days of meetings regarding monetary policy, the US Federal Reserve officially announced the third interest rate hike for 2018 on Wednesday (September 26).

The Fed, led by Chairman Jerome Powell, lifted the target federal funds rate by 25 basis points from 2 percent to 2.25 percent, causing the US dollar to once again pick up steam and pushing silver prices down modestly.

This will be the Fed’s eighth hike in two years, and, as Powell stated in a press conference following the policy meeting, “[t]his gradual return to normal is helping to sustain this strong economy.” Adding, “this is a pretty good moment for the US economy.”

The announcement put an end to the three-week high that the white metal experienced in the previous session.

Silver has taken several tumbles in 2018 thanks to the greenback rallying on the back of an increasingly positive US economy, expectations of higher US interest rates and fears of a global trade war.

Thanks to the current geopolitical landscape, investors have largely turned away from using precious metals as a safe-haven and instead are favoring US currency. This occurrence has speculators increasing their bets that prices for silver, and its sister metal gold, will fall.

In addition to today’s interest rate hike, the markets are also reacting to the Federal Reserve’s guidance regarding future interest rates. The Fed is on track to raise rates once more in December, three times in 2019 and once in 2020.

Yesterday’s announcement also marks the end of the era of “accommodative” monetary policy.

“They took out ‘accommodative,’ but then they clustered more hikes around the median and they edged up their long term, so that’s a little bit hawkish. The question who focuses on what – you never know,” stated Joseph Lavorgna, chief economist of the Americas at Natixis (EPA:KN)

“Additionally, the removal of the “accommodative” language on policy sent a somewhat hawkish message to financial markets—as this was offset by expectations for stronger growth in 2018 and 2019,” he added.

On a positive note for silver and other precious metals, some market watchers believe that by removing the ‘accommodative’ language, the greenback’s feverish climb will be halted.

Jamie Cox, managing partner at Harris Financial Group, stated, “[t]he strong dollar has been torpedoing everyone’s international investments for the better part of a year or so. If the dollar tails off here or just levels off, that is very bullish for emerging markets and other places where that dollar strength has really been a problem,”

“With the Fed sort of taking the accommodative language off, it removed the pressure for the dollar to continue to climb,” he added.

As of 9:40 a.m. EST on Thursday (September 27), silver was down 0.80 percent, trading at US$14.18 per ounce.

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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.



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