With very little optimism leading into the FOMC announcement this afternoon, silver got a huge boost today around 10 am EST, rallying 3% in short order. This pushed the spot silver price through resistance at $16.19/oz all the way to $16.40 per ounce, approaching another key resistance level at $16.50. The rally buoyed silver to a fresh 5-month high; if the spot price can hold on and close above $16.31/oz, this will be the best closing price for the white metal since the very beginning of June.
The swift uptick for spot silver came even amid light trading volumes. The thin volume can be attributed to many participants staying on the sidelines until after the 2 pm announcement by the FOMC, hoping to find a bit more clarity following the Fed statement.
The low volumes do, however, make the spot silver price susceptible to a correction if the Fed’s announcement isn’t sufficiently dovish. In other words, if the FOMC statement is insistent about the probability being high for a December rate hike (the next time the committee meets), then we could see a sell-off in silver just as quickly as it rallied. On the other hand, this morning’s surge ahead of the FOMC announcement is a clear expression from traders that they expect the news will be dovish. This could boost the precious metals even further.
The Versatile Metal
In contrast to gold, which responds to demand dynamics almost entirely driven by jewelry and investment purposes, silver is used extensively in industry and technology. (Although gold is vital to certain technological applications, it takes a very tiny amount of the metal to fulfill these industrial purposes.) In fact, nearly half of the silver supply goes toward industrial endeavors in medicine, radiography, electronics, the fast-growing solar power sector, and more.
This is an important difference. Although both metals share safe haven characteristics that make them attractive hedges in an investment portfolio, silver’s strong ties to industry mean that it tends to perform well even when economic conditions are stronger. This means that in the event that the economy actually does pick up next year, the spot silver price could be a big beneficiary.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.