Silver Price Forecast: A Major Impact from the Fed?

December 15, 2017

Anyone watching the financial news this week knows that one story seemed to dominate the headlines: the meetings of the Federal Reserve, after which it was revealed that the Fed would once again raise interest rates. Although this was largely an expected move on Wall Street—which helped mitigate any pessimism that would have otherwise come with the maneuver—it might be an even worse look for silver bugs who want to see their favorite metal perform well. Given silver’s recent performance, it may be that the metal is ending the season on a strong dip. What we have to ask now is whether or not silver will continue in this current course or whether there will be any more fallout from the Fed’s decision.

Poor Reaction from Mining Stocks

One of the best ways to watch silver’s reaction to these moves, of course, is to watch some basic prices: the price of silver and the strength of the U.S. dollar index. But watching silver stock prices can be just as revealing, as it tends to reveal where investor optimism or pessimism may be pushing the metal.

Surprisingly, the immediate reaction of silver stocks was just fine, according to Market Realist. This goes back to two days ago, when the major news was in the headlines, which suggests that there may be some resilience in the world of silver even given the recent headlines.

Movements After the Fed Raises Rates

But let’s zoom out. The Fed raising interest rates is always noteworthy in economic news—whether you’re forecasting the dollar or the price of silver—because of its far-reaching effects. With the Fed showing optimism in the growth of the U.S. economy, one reaction was to see the Australian dollar move up to 76.3 cents in the U.S.

While some investors and talking heads tend to see a 1:1 correlation between moves like the Fed’s interest rate hikes and the strength of the dollar, the truth is far more complicated. It’s a murky picture, which could present opportunities especially for people interested in silver, as precious metals have a way of cutting through the clutter over the long-term.

Where Silver Stands—And Where It’s Heading

Silver has returned back above $16 per troy ounce as of this morning, which means that it’s rebounding from the earlier dip—those who bought on the dip are now sitting pretty. But that doesn’t mean silver is done flirting with lower prices, even this year. Silver prices are subject to the same market principles as any other asset, which means that the short-term could still contain plenty of volatility for the white metal heading into 2018. What silver investors should focus on is the long-term here. Although the Fed sees reason for optimism in the markets—enough to raise interest rates—there are plenty of reasons to think that 2018 could carry some massive corrections on Wall Street, which may prove strong for precious metals. Whether silver will be the primary beneficiary of such a scenario remains to be seen.

Darren Capriotti

Darren Capriotti has been a market analyst for the past decade and is an expert in precious metals. He prides himself on his ability to analyze the market and offer true value to investors with questions about gold, silver, and other precious metals. Highly educated, incredibly passionate, and more accurate than most, Darren offers a true, unbiased look into what investors can expect in the precious metals market. You can reach Darren at dcapriotti@gold-eagle.com.

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