Silver Tumbles in the Wake of Fed Actions

- September 22nd, 2011

The markets were hit hard today as the Federal Reserve announcement of ‘Operation Twist’ rattled investors. The main fear is that the global economy may be moving towards another recession. Silver Investing News spoke with Jamie Greenough, Investment Advisor for Global Securities Corp. about the silver market in the wake of the recent Fed actions.

By Michael Montgomery—Exclusive to Silver Investing News

Wednesday’s announcement from the Federal Reserve has shaken the markets once again. The actions of ‘Operation Twist’ are quite different than the quantitative easing measures that have supported the tremendous price increases of precious metals. In a departure from the loose monetary policy of previous quantitative easing measures, the new program looks to sell short term bonds and reinvest in long term bonds. In the wake of the measures the dollar index has risen and oil has dropped- two factors that cause inflation and send investors seeking safe haven assets such as silver and gold.

The primary concern is that another round of actions from the Fed signals that any signs of an economic recovery are faltering at best, and moving towards another recession in the worst case scenario. The mentality in the market currently is: “When in doubt, get out.”

The price of silver fell to $35.84 per ounce, down $3.78, a loss of 9.54 percent on Thursday. As compared with the 2.49 percent loss for gold, silver is taking a much larger hit.

Silver Investing News spoke with Jamie Greenough, Investment Advisor for Global Securities Corp. about the silver market in the wake of the recent Fed actions.

Analysts are debating whether ‘Operation Twist’ will actually help the mortgage market and the economy. Interest rates are already low, however, many still cannot qualify for loans. It’s a prime example of catch-22. Raise the rates and banks are likely to give out more loans on increased profits; however, people would not be able to qualify for the loans in the first place.

“The Fed felt the need to do something. And it seems, with trading today, they may have done more harm than good,” stated Greenough, adding, “The Fed is trying to artificially depress long term rates, and the banking industry seems to be in trouble even before this announcement.”

The actions of the Fed have certainly spooked the market today. Gold, silver, copper and equities all took big hits during today’s trading, with silver taking the biggest blow of them all. Fears surrounding another recession are undoubtedly on high.

“Panic seems to be in the air today. Silver, with the double- edged sword of industrial demand and as a safe haven asset is being hit with a double negative today, percentage wise it is the most volatile today,” stated Greenough, adding, “It’s tough to put any one market under the microscope today amidst a huge broad based sell-off.” Unfortunately, as Greenough stated “Silver is just getting slammed today. The price movements may be a self-perpetuating panic trade today.”

Other variables in today’s trading included a higher US dollar index, lower oil prices, as well as signals that the Chinese economy is slowing.

“Rapidly rising inflation in China (and India too) has undermined the purchasing prowess of the very middle class that was supposed to keep demand at the “insatiable” notch for decades to come,” stated Jon Nadler, for Kitco.

It is seemingly a perfect storm weighing against most metals right now, with silver seeing the most volatility. With the price of silver falling well below many analysts key support levels, where the price will move going forward is hard to determine. Jamie Greenough stated reluctantly, “Key psychological support could be at $35 per ounce, with the low end around $33.75 per ounce.”

 


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