Silver Prices Hit 3-Week Highs, US Dollar Finishes Lower

Silver futures rose in lockstep with other precious metals Friday, as the combination of a weak US dollar and mixed economic data supported a higher settlement for the grey metal.

Silver for May delivery closed up 55 cents or 3.6% at $15.69 an ounce, the highest settlement on the Comex division of the New York Mercantile Exchange since February 12. The spot price closed up at $15.56 an ounce, which is well above the 200-day simple moving average. Relative strength is above 60 and moving higher while the MACD continues to show upward momentum.

silver prices

Silver prices surged more than 5% for the week and are now up nearly 14% on the year. The grey metal enjoyed a large rally through the first six weeks of the year as risk-averse investors exited stocks for the relative safety of precious metals.

The advance in gold, which is considered the premier safe haven asset, has been even more pronounced this year. The yellow metal has gained a whopping $210 in 2016. It closed at $1,271.76 an ounce Friday, a 13-month high.

The spot price closed at $1,260.10.

gold price

Meanwhile, platinum prices also soared Friday, gaining $29.75 or 3.1% to $978.80 an ounce. That was the highest settlement since last October.

The surge in precious metals has also supported mining-related ETFs. The PureFunds ISE Junior Silver ETF shot up more than 10% last week to close at its highest level since June 29, 2015. The ETF’s relative strength is slightly above oversold levels. Price action remains strong with both the 20- and 50-day simple moving averages on upward trajectories.

silver ETF

As one might expect, the precious metals rally abated in the latter half of February as risk sentiment returned to the financial markets. However, the latest rally in gold, silver and platinum coincides with a general uptrend in equity prices, which points to strong investor buying across the board.

Relative weakness in the US dollar throughout much of 2016 has also supported precious metals. The dollar index, a weighted average of the US currency against a basket of six rivals including the euro, yen, pound, franc, krona and Canadian dollar, closed down 0.3% at 97.34 Friday. That was the index’s third consecutive retreat following a prolonged rally that began in mid-February.

Precious metals such as silver have an inverse relationship with the dollar. As the dollar rises, precious metals tend to depreciate in value and vice versa. After the Federal Reserve raised interest rates in December for the first time in nearly a decade, many investors felt that the dollar would continue to soar in 2016 at the expense of non-yielding assets such as gold and silver. However, with the Federal Reserve not expected to raise rates anytime soon, investors are re-entering the precious metals market.

The performance of the US dollar is intricately tied to interest rate expectations, which are themselves driven by economic data and the performance of the broader US economy. On Friday the Labor Department said nonfarm payrolls rose much faster than forecast in February, but that average earnings declined unexpectedly. The mixed report provided no immediate clues about whether the Fed could use the numbers as justification for hiking rates in the coming months.

The Labor Department said nonfarm payrolls rose by 242,000 in February, up from a revised 172,000 gain in January that was originally reported as 151,000.

Average hourly earnings, which are used as a guidepost for inflation, fell 0.1% in February, well below forecasts calling for a 0.2% gain. In annualized terms, wages advanced 2.2% last month.

Looking ahead to next week, several economic data releases and monetary policy developments could influence investor sentiment and the performance of precious metals. Investors may be interested in monitoring things like risk sentiment and volatility during regular trading hours.

Weekly Economic Calendar

On Monday the Federal Reserve will release its Labour Market Conditions Index for February. Separately, Japan will release revised fourth quarter GDP figures that are expected to confirm the economy fell back into contraction in the final stretch of the year.

On Tuesday the Chinese government will release official trade figures for February. China’s trade picture is forecast to deteriorate further, leaving the door open to further yuan devaluing. Separately, Eurostat will post revised fourth quarter Eurozone GDP estimates.

On Wednesday the British government will release two closely followed indicators on industrial production and manufacturing production. The National Institute of Social and Economic Research (NIESR) will also release an estimate of UK GDP growth in the three months through February. The NIESR estimate is considered highly reliable.

Meanwhile, the Bank of Canada and Reserve Bank of New Zealand will each deliver an interest rate statement Wednesday. Both central banks are expected to keep interest rates steady in March.

Chinese inflation data will make headlines Thursday. Consumer prices are forecast to pick up in February, but producer inflation is expected to decline for a 48th consecutive month.

The week draws to a close with German consumer inflation figures and British trade numbers. Germany’s harmonized index of consumer prices is forecast to decline 0.2% annually in February, falling at a similar rate as the previous month. Meanwhile, Britain’s trade deficit is expected to grow slightly to £-10.3 billion from £-9.92 billion.

Sam Bourgi is a financial market analyst for economiccalendar.com. He has more than six years of progressive experience in economic and financial analysis, research consulting and sectoral analysis. As a published author in government, peer-reviewed, online and industry sources, he has developed a fundamental approach to the financial markets with a broad focus on stock indices, commodities and the technology sector. He earned his Bachelor’s Degree from the University of Windsor and Master’s degree from McMaster University.