Silver spot price rebounds from one-week low on bargain hunting

December 13, 2013

San Francisco (Dec 13)  The spot price of silver reached a one-week low of 19.283 in today’s Asian session on mounting speculation that the US Federal Reserve will reduce the pace of its quantitative easing programme next week.

Yesterday the US House of Representatives passed a bi-partisan budget plan that should ease automatic spending cuts, also known as sequestration, and reduces the risk of another government shutdown at the start of the New Year. The budget deal still has to pass the US Senate before being sent to President Barack Obama for signing into law.

The fiscal uncertainty in the US this autumn has been widely recognized as one of the critical factors stalling economic growth and resulting in the postponement of tapering until now.

Thus, the lessened danger of political brinkmanship in Washington tilts the odds for a December taper “close to 50 percent”, according to Nordea Market’s chief US analyst Johnny Jacobsen. Jacobsen believes that the main issue, which can delay the reduction of asset purchases until early next year, is the Fed’s mandate of price stability. He underlines that inflation has been trending away from the central bank’s two percent target and FOMC members may want to see it turn back up before tapering QE.

“However, because the US economy is widely expected to shift to above-trend growth in 2014, there are good reasons to believe that the Fed will stick to the view that inflation will move back to its objective longer out[term]” concludes Nordea’s analyst.

In fact, November’s US Producer Price Index showed today a drop of 0.1 percent m/m, falling short of the market consensus for an unchanged reading. The PPI declined by 0.2 percent in October, suggesting that the deflationary pressure may be easing on the side of producers. Thus, today’s data leaves the burning question open – if the Fed is going to announce tapering next week.

That was enough for the spot price of silver, which gained on bargain hunting and short-covering. Right now, the precious metal is trading around 19.697, up 0.79 percent intraday.

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