- The price of silver slightly increased last week, which also pulled up silver ETFs such as iShares Silver Trust (SLV).
- This week’s FOMC meeting could drag down the price of silver.
- The U.S. GDP and non-farm payroll reports could also impact the silver market.
The silver market didn't do much last week as the price of silver slightly rose. This week there are many items on the agenda, which could stir up the silver market. Let's analyze the main events and publication that may affect the price of silver and silver ETFs.
The modest gain in the price of silver has reflected in a slight rise in the demand for silver ETFs such as iShares Silver Trust (NYSEARCA:SLV). During last week, the Silver Trust's price inched up by 0.3%. Moreover, other Silver investments such as Silver Wheaton (NYSE:SLW) also bounced back by 2.7%. Looking forward, the upcoming FOMC meeting, the U.S. non-farm payroll report, U.S. GDP for the first quarter of 2014, the progress of the U.S. dollar, and the demand for silver in Asia could affect the price of silver. Let's examine these issues.
U.S. economy and silver
This week, the FOMC will convene again for its third meeting this year. This time, there won't be any press conference.
The table below shows the FOMC's past decisions, and the reaction of the price of silver the day of the statement was published and the following day.
As you can see, in the past four meetings the price of silver tumbled down the day after the FOMC released its press release. Moreover, the table also shows the negative impact the tapering decisions had on the price of silver has slowly diminished.
The current expectations are that the FOMC is likely to keep its tapering policy and reduce the asset purchase program by an additional $10 billion. After all, the latest non-farm payroll report showed a steady rise in the number of jobs added to the workforce. Therefore, if the FOMC tapers again, this decision could have a short-term modest negative effect on the price of silver.
Besides the FOMC decision, two import economic reports will be released this week: Non-farm payroll report and a preliminary estimate of the GDP growth rate in the U.S. for the first quarter of 2014. These two reports could steal this week's show especially if they surprise the markets. Specifically, if the GDP growth rate falls short of the current market estimates of around 1%-2%, this could suggest the U.S. economy isn't progressing. This sentiment, in turn, could bring investors back to investments such as gold and silver.
Furthermore, the non-farm payroll report tends to be correlated with the price of silver - if the number of jobs added doesn't reach the current expectations of around 215,000, this could bring back up the price of silver. From the other side of the globe, India's demand for silver is likely to play a secondary role in determining the price of silver.
Silver in India
The demand for silver in India is likely to curb down in the coming months following the recent decision of the Indian government to modest gain in silver import tariff value from $644 per kg to $646 per kg. This decision was made, according to one report, to cut down the country's current account deficit. The higher tariffs led to a rise in the amount of precious metals smuggled to the country. Looking forward, some analysts are optimistic that the upcoming elections in India next month could result in looser policy and bring down these restrictions. Therefore, if India's silver consumption rises, this could also pressure up the price of silver.
The price of silver inched up last week and remained around $20. This week, however, the silver market could experience high volatility, especially if the FOMC or one of the U.S. economic reports surprises the markets. My guess is that the GDP estimate will not reach the current expectations and will pull further up the price of silver. Conversely, if the non-farm payroll report passes the 220 thousand jobs added and the FOMC keeps tapering QE3, they could adversely affect the price of silver. On a weekly scale, however, the silver market might start to heat up again but will stay close to the $20 anchor.