Silver prices will endure a prolonged downside trend through to late 2015, as the dollar strengthens and the Federal Reserve gears up to hike central lending rates for the first time since lowering them to 0.25 percent in 2008, argued Adam Koos, president of Libertas Wealth Management Group.
“You should not invest in silver now if you like making money and doing so safely,” Koos said as quoted by MarketWatch.com. “There is entirely too much headwind and uncertainty concerning the US dollar, not to mention a 100 percent chance that interest rates will rise.”
The Federal Open Market Committee (FOMC) is holding a next key decision-making meeting next week. The meeting is highly unlikely to result in a rate increase announcement, but will most probably lay major groundwork for an upcoming hike in September, analysts argue.
Since the last Fed meeting in April, US economic data has mostly clocked in above-par. Consumer inflation rose to 1.8 percent on an annual basis in April, higher than the 1.7 percent forecast and closer to the Fed’s strategic 2.0 percent target. Nonfarm payrolls, a crucial metric preferred by the Fed for gauging labour market strength, came in significantly higher than expected at 280,000, as compared with estimates of 225,000.
The Fed has said that it will not wait for inflation to reach the 2.0 percent target before taking action, and has strongly suggested that rates will be increased before year’s end.
Higher rates increase the yield of interest bearing assets, like bonds, which decreases the investment appeal of precious metals.
Furthermore, silver tends to move with greater momentum than gold, suggesting that the white metal in particular will most likely suffer a bit as the rate hike nears and speculation intensifies.
However, Koos expects that precious metals are in for a bull run come 2016, and advises investors to take up short positions in the silver market, and “purposely procrastinate.”
“Take a little hiatus until 2016…when the US president will be a huge question mark, US stocks will most likely pick up in volatility and any rate increases will have already been priced into the metals.”
Silver’s tendency to move at greater pace than gold means that the white metal could indeed soar in 2016, with prices tipped to reach as high as $30 per troy ounce.
Silver has a “strong chance at hitting” $25 to $29 next year, predicts Paul Mladjenovic, author of Precious Metals Investing for Dummies. Curiously, his long-term price target is a staggering $100 per troy ounce, though he’s given no specific time frame.
Silver futures for July settlement on the COMEX division of the New York Mercantile Exchange had dipped 0.39 percent to $15.898 per troy ounce as of 08:53 BST today. The contract has depreciated nearly 10 percent in the past month, but is still some four percent higher year-to-date.