Silver Prices Hit 5-Week Highs as Dollar Rout Intensifies

Precious metals resumed their post-FOMC surge Thursday morning, with silver prices soaring to five-week highs amid a broad retreat in the US dollar.

Silver futures climbed 52 cents or 3.4% to $15.72 US per troy ounce, the highest level on the Comex division of the New York Mercantile Exchange since February 11. The grey metal is likely to see immediate resistance at $15.83 and a clean break above that level could expose new highs. A failure to break this key high could send silver prices back toward the lower end of the $15 range.

Relative strength has accelerated sharply and is in bullish territory at 60. Price action is strong with the 20-day and 50-day simple moving averages continuing their upward trajectory.

silver prices

Precious metals diverged sharply with the US dollar Thursday after the Federal Open Market Committee (FOMC) downgraded rate hike expectations for the year. The Fed acknowledged improvements in household spending and the labour market, but said weak exports and below target inflation continue to impede rate normalization. The FOMC now sees two rate hikes occurring in 2016, according to the “dot plot” summary of interest rate expectations. It had previously anticipated four.

The minutes of the March 15-16 FOMC meetings will be released April 6. The Fed’s next policy meeting is scheduled for April 26-27.

Gold prices rose in dramatic fashion Thursday, reversing sharp losses over the previous four sessions. Comex gold surged $39.60 or 3.2% to $1,269.40 US per troy ounce, its highest level since March 10.

Platinum spot also moved sharply higher, climbing $12.25 or 1.3% to $989.40 US per troy ounce.

The US dollar, which has an inverse relationship with precious metals, plunged for a second consecutive day as the prospect of an early rate hike faded.

The dollar index, which tracks the performance of the greenback against a basket of six currencies including the euro, yen, pound, franc, krona and loonie, plunged 1.2% to 94.82. That was its lowest level since mid-October.

The dollar has declined 1.9% since the Federal Reserve’s rate decision Wednesday afternoon, having suffered heavy losses against the euro, yen and pound. EUR/USD exchange rate climbed 0.9% to 1.1313, its highest level since February 12. USD/JPY fell 1.1% to 111.57, its lowest settlement of the year. GBP/USD surged 1.4% or 200 pips to 1.4445, a one-month high.

Demand for dollar-denominated silver is likely to continue rising as the US currency loses its purchasing power making precious metals a more attractive investment.

A low rate environment, which the Fed is clearly pursuing at the moment, will also create more investment opportunity for equities and other risky assets. US stocks ended higher Wednesday afternoon following a late session rally. Stocks were poised to open lower Thursday morning, according to activity in the futures market.

Asian stock markets were largely mixed Thursday, while European markets were down across the board.

In monetary policy news, the Bank of England (BOE) voted to keep interest rates at record lows Thursday amid an uneven domestic recovery and ‘Brexit’ fears. The Bank’s Monetary Policy Committee (MPC) voted 9-0 in favour of keeping interest rates at 0.5% and holding the size of the asset purchase facility at £375 billion.

On Wednesday George Osborne announced his eighth Budget as UK Chancellor. In announcing the new scheme designed to reduce public spending by £3.5 billion through 2020, Mr. Osborne acknowledge that his government severely overrated the strength of the UK recovery.

The UK government downgraded its 2015 growth estimate to 2.2% from 2.4% back in November. It also said that growth would average just 2% in 2016, down sharply from the 2.4% forecast four months ago.

Weak economic growth throughout the globe is expected to keep monetary policy highly accommodative, which bodes well for precious metals and equities that are becoming increasingly linked to expectations about interest rates and liquidity.

The Bank of Japan (BOJ) will release the minutes of its latest policy meetings later on in the day. The BOJ voted to keep monetary policy unchanged at its meeting earlier this week.

On Friday China’s National Bureau of Statistics will report on house prices. The BOE will also release its Quarterly Bulletin in the European session.

In North America, the Canadian government will report on retail sales and consumer inflation, while Reuters/University of Michigan will issue their monthly consumer sentiment index.

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.