Silver spot price drops to 1-month low after Fed trims stimulus

January 30, 2014

New York (Jan 30)  The spot price of silver has been under pressure since yesterday’s decision by the US Federal Reserve to trim its quantitative easing programme by another $10 billion to $65 billion per month. In today’s US session, silver slipped below $19 for the first time this year, reaching a one-month low of $18.995.

In the view of analysts at HSBC: “While the implications behind less loose monetary policy or policy tightening is theoretically negative for gold [and silver], this may have largely been priced into the bullion markets.”

The potential catalyst of the latest downswing in precious metal prices may be the unwillingness of the FOMC to strengthen its forward guidance in an attempt to supress long-term borrowing costs in the States. The Committee decided unanimously to keep its policy reaction function unchanged.

Alongside the first taper-decision in December, the FOMC modified its forward guidance, adding that borrowing costs will stay low “well past” the point when the US jobless rate slips below the 6.5 percent threshold if inflation remains lower than expected. The US unemployment rate currently sits at 6.7 percent or just two-tenths of a percent above the Fed’s 6.5 percent no-rate-hike threshold.

Neil Dutta, head of US economics at Renaissance Macro Research, believes the Committee “could lay out the labor market indicators they are monitoring beyond the unemployment rate or they could adopt an inflation floor, a commitment to keep rates low so long as inflation remains below 1.5 to 2.0 percent, for example”. This would add further clarity to the Fed’s forward guidance policy.

The decline of the precious metal’s price gained traction overnight UTC after data showed that the Chinese manufacturing sector contracted in January for the first time in six months. The HSBC Final China Manufacturing PMI checked in at 49.5, missing the flash estimate of 49.6 and well below December’s 50.5.

In the run-up to the North American session, silver edged below a two-week line of support and reached a one-month low of $18.995, minutes before the release of US GDP data for the last quarter of 2013.

The preliminary US GDP showed an annualized rise of 3.2 percent in Q4, falling short of market expectations of 3.3 percent growth. The disappointing release, however, has lifted the spot price of silver from its lows.

Right now, silver is trading at around $19.101, down 3.07 percent intraday.

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