2 Reasons The Price Of Silver Will Continue To Climb As The Dollar Falls

The USD is likely to add continued support to silver price growth.

Tuesday, August 2, 2016

If we look at what experts are saying about silver, we'll see that just about everyone is expecting to see further gains in the price of the precious metal, and everyone has their reasons. With the Fed keeping the rate low, the Brexit, and other economic concerns around the world, it makes sense that precious metals will rise. However, today, we're going to focus on two main factors that say that the USD is likely headed down further. As a result, the price of silver will likely rise.

Understanding The Relationship Between The Dollar And The Price Of Silver

Before we get into the two factors that will likely lead to declines in the USD, it's important that you understand the relationship between the USD and silver. You see, silver, like most other commodities is priced using the USD. As a result, when the value of the currency heads up, silver becomes less accessible in nations outside of the United States thanks to currency exchange rates. This leads to declines in demand for the precious metal and ultimately declines in its value. Adversely, when the USD declines, we tend to see gains in the value of silver. This is because with a low USD, silver becomes less expensive in other nations, leading to demand and price increases.

GDP: The #1 Reason The Dollar Will Decline And Silver Will Rise

The number one reason that I believe that the USD is going to head downward in the foreseeable future, sending silver upward, is the US GDP or Gross Domestic Product. The GDP is the best measure of how well, or how poorly, any given economy is doing. Recently, we received news with regard to the US GDP in the second quarter and first half of 2016. Unfortunately, the news wasn't positive.

The report showed that during the second quarter, the GDP in the United States grew by only 1.2%. This widely missed analyst expectations of 2.6% growth in GDP. On top of this, there was a revision made to first quarter GDP estimates. Because of the downward revision, the growth rate for the first half of the year came in at only 1%.

We all know that any currency can only be as strong as the economy it represents. Recently, we've watched the USD edge upward as it was expected to continue growing at a relatively strong rate. However, with the rough economic data out of the United States, it only makes sense that the USD would see further declines, leading to further gains in the price of silver.

The Federal Reserve: Reason #2 To Expect Further Gains In The Price Of Silver

The biggest threat to the growth we're seeing in the price of silver is the Federal Reserve. You see, the Fed has plans to increase its target interest rate. In doing so, it would effectively increase the value of the USD, leading to declines in the price of silver. However, at the moment, this really isn't a threat.

The reality is that for the Federal Reserve to increase its interest rate, we would have to see positive movement in US economic conditions. After all, the economy would have to be able to bare the weight of a stronger currency. Not to mention, we would have to see some global economic improvement as well. Considering the recent US GDP data, and what we know is going on with the global economy, it simply doesn't make sense that the Fed will increase their rate any time soon. As a result, we should see a continuation of weak movements in the USD and strong movements in the price of silver.

What Do You Think?

[Image Courtesy of Wikipedia]

 
 

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Joshua Rodriguez

Joshua Rodriguez is an avid financial professional. He is the owner and founder of CNA Finance, a partner at Modest Money, and a writer for US News & World Report, Investing.com, and more! Joshua takes a strong fundamental approach to market analysis and enjoys offering his take on what we can expect moving forward. You can reach Joshua at [email protected].