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Summary

  • The price of silver slightly declined last week, which also dragged down silver ETFs such as iShares Silver Trust.
  • The appreciation of the U.S. dollar against the Aussie dollar and yen may have dragged down precious metals prices.
  • This week’s Yellen’s testimony could affect the price of silver.

The price of silver bounced back on Friday from its slow descent throughout most of last week. The recent FOMC decision and non-farm payroll report may have pushed silver in different direction but on a weekly scale the price of silver slightly declined. Will silver resume its downward trend? Looking forward, several news items could move the price of silver. Let's examine the main events and publication that may affect the price of silver and silver ETFs.

The modest drop in the price of silver has reflected in a decline in the demand for silver ETFs such as iShares Silver Trust (NYSEARCA:SLV). During the previous week, the Silver Trust's price slipped by 1.3%. Conversely, some other Silver investments such as Silver Wheaton (NYSE:SLW) slightly rose by 0.5%. This week, the upcoming testimony of Janet Yellen, the U.S. job opening and labor turnaround survey, and the progress of the U.S. dollar could affect the price of silver. Let's analyze these issues.

U.S. economy and silver

Following last week's the FOMC convened for its third meeting this year. As expected, the FOMC tapered again its asset purchase program.

The table below presents the FOMC's previous decisions and the impact they had on the silver market the day of these decisions were published and the next day.

Source: FOMC's site and Bloomberg

As you can see, in the last five meetings the price of silver declined the day after the FOMC released its press release. This time, the FOMC's decision also contributed to the fall of silver.

But on Friday the price of silver bounced back following the publication of the non-farm payroll report, in which 288 thousand jobs were added. Moreover, the rate of unemployment slipped to 6.3%. Alas, the civil labor force declined, which is mostly reason for the lower unemployment rate. This report didn't impress the markets as precious metals rallied, equities slipped and the U.S. dollar remained nearly flat on Friday. This week the JOLTS monthly update will be released and could shed some additional light on the U.S. labor market. If it further improves, it could impact not only the U.S. dollar but also precious metals prices.

This week the FOMC Chair Yellen will testify before the U.S. Senate about the Fed's U.S. economic outlook. Her testimony could impact the financial markets mainly if she were to clarify the FOMC's monetary policy and future plans.

The developments in the foreign exchange market could also play a secondary role in affecting the silver market.

Silver and U.S. dollar

During last week, the U.S. dollar slightly rallied against yen and Australian dollar. The chart below presents the linear correlation of the daily percent changes of silver and leading currencies pairs during April and May.

(click to enlarge)

Source: Bloomberg

As you can see, the linear correlation among AUD/USD, USD/yen and the price of silver are the strongest of the main currency pairs. This means, if the U.S. dollar further rallies against these currencies, it could pressure down the price of silver. The upcoming U.S. economic reports including trade balance, JOLTS report, non-manufacturing PMI, and jobless claims could affect the U.S. dollar against leading currencies.

Takeaway

Despite the high volatility of silver in the past several days, the price of silver remained close to the $20 mark. The upcoming U.S. reports and Yellen's testimony could rattle the silver market, but the silver is likely to remain close to its $20 anchor.

Source: Will Silver Resume Its Downward Trend?