The optimism that silver investors were enjoying earlier in the month when the metal was holding above $20 an ounce have been washed away in the last few weeks with the price now flirting with the lows reached in July and threatening to sink down to the levels last seen in July 2020.
As has been the case for much of the year, the key driver for silver’s price action is the words and actions of the Federal Reserve. Hopes that the US central bank may not need to be so aggressive with its future monetary policy in the wake of economic data that showed the US was holding up surprisingly well despite high inflation have been replaced by the stark reality following comments from Fed Chair Jerome Powell that the bank will continue to raise interest rates for the foreseeable future.
Silver’s lack of yield means that the metal struggles in an environment where interest rates are rising so this reminder that plenty of action is still needed by central banks across the world to curb persistently high inflation has brought the price of silver shuddering down.
How silver reacts as it trades near the lows of last month will be instructive after the metal appeared to form a strong bottoming of its price when it sank to those levels. With a fundamental outlook that still points to healthy demand for silver due to its use in key industries such as solar energy and electric vehicles, investors may once again see these sub-$19 an ounce levels as a buying opportunity.
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