The Federal Reserve Provides Support To Silver

Friday, March 18, 2016

All eyes have been on the Federal Reserve for more than a year at this point, and for good reason. At the end of the year 2014, economic conditions in the United States were proving to be positive, and the Federal Reserve made a key announcement. It would be increasing its interest rate by the end of the year 2015. While their attempts to do so were halted over and over again due to poor economic conditions in the US and around the world, the Fed was finally able to increase its interest rate in December of 2015. However, that wasn't the big story. The big story was that the Fed was planning 2 to 4 more rate hikes by the end of 2016. Earlier this week, the FOMC meeting for the month of March came to a conclusion, and no interest rate hike came of it. As a result, silver is soaring in the market, and likely to continue doing so.

Today, we'll talk about what the Federal Reserve's interest rate has to do with the price of silver, what we saw in the value of the precious metal yesterday, and what we can expect to see in the value of silver moving forward.

What Does The Federal Reserve Have To Do With Silver?

The Federal Reserve, like any other central bank around the world, sets the stage with regard to monetary policy in the United States. When the Fed decides to increase its interest rate, what it's really doing is adding value to the United States dollar and telling the world, “Our economy is spectacular!” This tends to hurt the value of silver. You see, silver is priced using the USD. Therefore, when the USD goes up in value, the cost of silver in nations outside of the United States rises. This leads to lower levels of demand and ultimately declining prices surrounding the precious metal. Also, silver is considered to be a safe haven investment. Therefore, it does best when economic and market conditions aren't doing very well. So, if the Fed increases its rate, showing strong signs for the US economy, the cost of silver tends to fall.

What We Saw From The Fed This Time Around

The Federal Reserve announced that it would not be increasing its interest rate for several reasons. First and foremost, they are looking for growth in key economic factors in the United States before making this move. Unfortunately, they have seen no changes since the last rate increase in the month of December 2015. Also, the global economy needs to be taken into account here, and it simply doesn't seem as though the global economy would be able to withstand a higher US interest rate at the moment.

How This Affected Silver

Because the Federal Reserve didn't increase its interest rate, and it hinted toward economic struggles in the United States, the USD fell in value shortly after the announcement. So naturally, with the USD losing value, silver has become more accessible to consumers outside of the United States, leading to stronger demand. Another factor leading to stronger demand for silver is safe haven investments based on economic conditions. As a result, silver has been skyrocketing since the announcement. In fact, before the announcement, the value of the precious metal was just over $15 per ounce. At the moment, it is now trading near $16 per ounce.

What We Can Expect To See Moving Forward

Since the beginning of last year, I've been warning my friends, family, and readers of hardships that were likely coming in the economy and the markets in the year 2016. I still believe that my prediction with regard to this is spot on. With that said, I'm expecting to see more economic and market turmoil throughout the year. This will likely lend a hand to growth in the value of silver as the year progresses. 

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 cnafinancehelp@gmail.com.