Silver Price: Why I Believe That Next Week Will Be A Strong Week

Wednesday, September 14, 2016

fibe silver

Silver has been an incredibly interesting commodity to follow as of late. Recently, since comments were made by Eric Rosengren that he supports a higher rate, the price of the precious metal has been declining. However, there's still a bit of a debate to be argued. Really, it's not that cut and dry. Today, we'll talk about what a rate hike has to do with the price of silver, the argument for a rate hike, the argument against it, and why I believe that silver is presenting quite the opportunity at the moment.

What Does The Potential Rate Hike Have To Do With Silver

Like most commodities, silver is priced using the USD. This ultimately means that when the value of the USD rises, silver becomes more expensive around the world…thanks to differences in currency rates. With it being more expensive, less buyers have the money to purchase the metal, leading to declines in demand. As a result, the price of the white metal falls. On the other hand, when the USD falls in value, we see the exact opposite from silver as buyers go on a frenzy, picking up the precious metal at lower relative prices.

The Argument For A Rate Hike

The argument for a rate hike is a relatively simple one. To be sure low interest rates were put in place shortly following the 2008 and 2009 global economic crisis. The goal of the low rates was to improve economic conditions. Those who support a rate hike argue that at this point, economic conditions have vastly improved and continue to trend in the positive direction. As a result, they are expecting for the Fed to increase its rate soon.

One of the experts that investors are watching closely on the matter is Boston Federal Reserve Bank President and a voting member of the monetary policy committee, Eric Rosengren. Recently, Rosengren made statements that showed he supports the idea of a higher interest rate. He also warned of asset bubbles that could result of keeping interest rates too low for too long.

The statements made by Rosengren have only fueled the bearish fire on silver. With more and more investors having the impression that rates are going up, silver is feeling the heat.

The Argument Against A Rate Hike

While there is definitely a strong argument for a rate hike, there's also a strong argument against a rate hike. In general, economic conditions are far from perfect. Moreover, inflation has yet to meet the Federal Reserve's 2% target. In fact, inflation is far lower than it should be.

Also, there has been quite a bit of recent news that support keeping rates low for longer. First and foremost, jobs growth in the month of August was feeble at best, missing economist expectations and raising economic concerns. More recently, the oil market has taken a big hit this week as the result of demand blues. With massive global declines in demand, oil could take another dive. Because the US economy is an energy heavy one, the Fed is likely to take this into account when making their decision.

Silver Is An Opportunity At The Moment

While silver continues to fall as investors fear the worst, the truth is that the precious metal is likely presenting an opportunity at the moment that many will miss out on. I am of the opinion that it would be reckless for the Fed to increase its interest rate this month, considering conditions with regard to oil, jobs growth and lack of action by the ECB. Getting in at the bottom just before the release of the Fed's decision will likely yield incredible gains. Of course, there is a risk that the Fed could raise rates. However, in my opinion that risk is relatively small. 

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.