Silver Price: Jobs Report Signals Rocky Road Ahead

Wednesday, August 31, 2016

Silver like gold had a great run throughout the first half of the year. However, more recently we've been seeing declines in the precious metal as economic concerns ease -- and the idea of a Fed rate hike seems more reasonable. Today, more data was released that could lead to further volatility in the price of silver. Today, we'll talk about the data that was released, what it means for silver…and what we can expect to see from the precious metal ahead.

ADP Employment Report Shows Signs Of Continued Growth In US Economy

As mentioned above, a report was released today that could lead to headwinds in the price of silver ahead. That report was the ADP Employment Report. It is designed to show growth (or lack thereof) in private sector jobs in the United States. The report that was released showed that in the month of August, private sector jobs grew by 177,000. This figure came in well ahead of analyst expectations. We'll talk about why that's bad news for the price of silver later.

Another important piece of information that we find when we put pieces of the job market puzzle together is that the government report on US jobs growth is likely to be overwhelmingly positive. This report will be released Friday…and will likely cause quite a bit of movement in the market. Last month the ADP report came in with a growth of 179,000 – while the government report came in at 255,000 jobs. The strong ADP report suggests that the government report will be overwhelmingly strong. Currently, economists are expecting to see growth in the amount of 180,000 jobs. Considering what we saw between the ADP and government reports last month, we could see a massively positive report on Friday.

What Does This Have To Do With The Price Of Silver

At first glance, it may seem like the price of silver and United States jobs are two completely different topics. However, that couldn't be further from the truth. At the end of the day, there are two big reasons why such a strong jobs report could be a bad thing when it comes to silver's price.

  • USD – First and foremost, silver has an inverse relationship with the USD. This means that when the USD climbs, the price of silver falls and vice versa. Strong economic data out of the United States is likely to lead to a stronger United States Dollar. Not to mention the implications that strong data could have with regard to the coming rate hike decision. If the Fed increases its rate, we'll likely see the USD skyrocket, leading to declines in silver.

  • Safe Haven Properties – Silver is a commodity that has the properties of a safe haven investment. Therefore, when economic and market conditions are negative, investors look to the precious metal to keep their assets safe. However, when economic conditions are positive, investors tend to sell their silver positions…and move back toward the stock market in search of growth. With the strong economic report out of the United States, safe haven demand becomes that much weaker.

What We Can Expect To See Moving Forward

When it comes to silver, I remain cautiously optimistic with regard to what we could expect to see moving forward. While data seems to be pointing to a higher interest rate on the horizon, even if the Fed does increase its rate, it will likely be a very small rate hike. In which case, the effect in the currency market and on the price of silver would be relatively minimal. Also, while economic conditions are improving around the world, there are still more questions than answers at the moment. Nonetheless, any sign of further weakening in the global economy has the potential to send silver skyrocketing.

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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 cnafinancehelp@gmail.com.