The recovery of the iShares Silver Trust ETF (NYSEARCA:SLV) continued last week as the U.S. dollar devalued against leading currencies. The non-farm payroll report showed a gain of only 151,000 jobs - below market projections. And even though other aspects of the report were mostly positive, this news helped push up the price of SLV last week. Looking forward, the direction of the U.S. dollar, chances of the Fed raising rates and the market sentiment could keep impacting SLV.
After the U.S. dollar rallied throughout most of 2015 and the start of 2016, the greenback changed course and fell in the past week. It's still too soon to consider whether this deprecation will continue. But it did provide a boost to the price of SLV. It's worth noting that even when the U.S. dollar appreciated at the beginning of the year, SLV kept slowly climbing up. That was mostly attributed to other factors such as the growing concerns over a possible economic slowdown.
These concerns aren't only related to what's going on aboard - mostly in China, which in any case shouldn't have a strong impact on the direction of the U.S. economy. Several economic indicators suggest the economy is cooling down: The growth of the GDP in Q4 was only 0.7%. And in the past PCE report, consumer spending remained flat in December while personal income rose by 0.3%; consumer saved up these gains. Moreover, the last non-farm payroll report also showed a 2.5% growth in wages year on year. If growth in wages isn't used for spending but rather for savings, this could lead to further economic curtailment. And since the bearish market sentiment persists, this sentiment is also likely to feed the growing concerns over a possible recession. As for the NFP report, it should be noted the unemployment rate is considered a lagging indicator; so if there is a slowdown, it will be noticed in this indicator in a couple of quarters from now.
But for SLV, this trend could boost its demand since it's perceived by many - mostly precious metals enthusiasts - as a safe haven investment (even though I don't think SLV is actually a reliable safe haven investment in times of uncertainties).
Another factor that is keeping up the price of SLV is the ongoing fall in the chances of the FOMC raising rates this year. Currently, the market estimates the chances of a rate hike by December are only at 44% - only a month ago, the odds for a hike were 86%. And if the Fed were to keep its cash rate unchanged, this could keep reducing the long-term interest rates - another positive development for SLV. This week, the Chair of the FOMC Yellen will testify before Congress as part of the semiannual monetary policy. The testimony will include Yellen answering questions about the state of the U.S. economy, the Fed's outlook and its monetary policy. This event could impact the direction of SLV based on the takeaway of the markets from Yellen's testimony.
SLV is getting back-wind from a weaker U.S. dollar and lower chances of a rate hike this year by the Fed. But the greenback is likely to make a comeback as other central banks resort expansionary monetary policy such as cutting rates and augmenting QE programs. Even so, low interest rates and bearish market sentiment are likely to keep driving up the price of SLV. For more, please see What's Up Ahead for Silver in 2016?
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