US Dollar and Fed’s Next Move Continue to Tarnish Silver Prices

New York (Nov 8)  Gold’s long-standing duel with the US dollar continued to drag on silver prices this week. However, physical demand for the white metal remains strong, especially in the coin market, where sales of American Eagle Silver Bullion Coins have already beat last year’s sales total and remain on track to overtake the record set in 2011.

Silver futures started out at a two-week low, trading down 0.162 cents, to $21.67 an ounce, on Monday. The precious metal tracked gold as a rally in US equities stripped away some of the allure of safe-haven investments; the slump was mitigated by a slightly weaker dollar and newsthat senior Federal Reserve officials are not in a rush to scale back quantitative easing.

Despite reassurances, caution prevails in the precious metals paper markets, where traders have interpreted better-than-expected US economic data as a sign the Fed may change its mind and announce a pull back on QE3 as early as the next Federal Open Market Committee meeting, scheduled for December.

The dollar’s downward pressure on gold and silver on the COMEX continued Tuesday, with silver hitting yet another two-week low of $21.56 per ounce before closing at $21.70.

Both silver and gold prices garnered a reprieve as the greenback slid against a stronger euro ahead of the European Central Bank’s (ECB) policy meeting. With the pressure off, silver gained support from a bullish outlook in commodities prices, trading up 0.164 cents, to $21.80 per ounce, on the COMEX.

Silver futures lost those gains Thursday, falling to a three-week low of $21.60 per ounce for December delivery. The US dollar moved up against the euro on news that the ECB cut its key interest rate by 0.25 percent and got a further push to the upside by better-than-expected US gross domestic product data.

The next market mover for precious metals is the US jobs report, set to come out Friday. Analysts are cautioning that positive numbers could signal earlier tapering of bond buying by the Fed.

American Eagle sales soar

Investors may be pulling out of the paper markets, but demand is still strong in the physical markets, as is evidenced by record-reaching sales of American Eagles. “The [US] Mint has struggled to keep up with silver-coin demand for much of 2013,” reported The Wall Street Journal. “It ran out of the coins in January and imposed limits on coin sales to its authorized dealers. Those limits remain in place.”

Terry Hanlon, president of Dillon Gage Metals, an authorized dealer for US Mint gold, silver and platinum coins, told the Journal,”[w]e buy silver product every week, and we didn’t used to buy product from the Mint 52 weeks a year. The demand is there.”