Silver looks set to end one of its best weeks in recent months by holding above $20 an ounce as the potential for a less hawkish Federal Reserve proved the catalyst to unlock some of the metal’s long-term value.
Later today there will be some crucial September US jobs data which will give further clarity on the state of the world’s largest economy. With markets likely to adopt a holding position until these data releases, silver’s reaction will be interesting to watch as it finds itself stuck between two contrasting factors.
Given silver’s far more industrial exposure than its precious metal peer, gold, a healthy US economy is helpful for the metal’s fundamental outlook and will help support demand with it a key component of the energy transition, used in photovoltaics and in the batteries of electric vehicles.
However, a healthy US economy would also provide the Federal Reserve with more breathing space to continue its series of significant interest rate hikes as the US central bank tries to bring inflation under control. The recent rhetoric from Fed officials point to a determination to stay the course with upcoming hikes to a positive jobs figure would provide more wiggle room for them to initiate those. Given that it was the switch to a hawkish policy that triggered silver’s multi-month collapse from April onwards that saw it sink to its lowest level in more than two years, the prospect of more rate hikes is clearly bearish for silver.
If silver can end the week still above $20 an ounce, then it would firmly illustrate that the lows are fully behind the precious metal with investors focusing on the longer-term outlook having already meted out sufficient punishment based on its shorter-term prospects.
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