By Richard Rittorno
Silver prices continue to climb, as investors focus on U.S. economic data reports to determine whether or not the U.S. Federal Reserve will begin its tapering process later this year. For the past seven consecutive days, investors have pushed silver (NYSEARCA:SLV) higher as renewed speculation that the Fed will not begin tapering its $85 billion per month asset purchases. In fact, investors have pushed prices back to the June highs.
Silver's Achilles heel is an improvement in the U.S. economy that in turn reinforces the view of the Federal Reserve's need to taper its asset purchases in the coming months. But for the past seven days the silver market is pricing in no such tapering move. Even though silver has been moving higher these past seven sessions, on the year silver remains some 27% lower on concerns about the Federal Reserve's plan to taper its asset buying. What we are seeing is a shift in thinking, as market participants attempt to digest U.S. economic reports and determine whether or not the U.S. can begin to stand on its own. In the past seven days, thinking seems to be shifting.
Market participants are now changing their focus to the Core CPI and unemployment claims reports and the all-important building permits and housing starts reports. We will also get glimpse into the August non-farm payroll report with the release of the preliminary non-farm productivity report, followed by the preliminary consumer sentiment report.
Bottom Line: Depending on which camp you are in (to taper or not to taper), silver is an option to play the Fed decision. Using in-the-money options is great way to take advantage of a directional move by defining your risk.