Why Silver Prices Are Up Today

Heading into the week silver prices were cooling off from a June rally, potentially signaling the start of the summer doldrums, when the white metal generally sees weak trading.

But a new release from the Fed this week is one of the big reasons why silver prices are up today…

Wednesday marked the release of last month’s Federal Open Market Committee (FOMC) meeting minutes, which caused silver prices to push back in the face of low expectations. Just before the 2 p.m. EDT release of the Fed minutes, silver was trading down 0.8% on the week at $21.03 an ounce. Since then, silver has shot up as high as $21.53, a 2.4% surge.

Silver hasn’t seen prices this high since March, when it was topping out a bullish month for traders.

Investors have been listening closely to the words of the Fed lately, with Fed Chairwoman Janet Yellen’s mention of potential interest rate hikes or disregard of the prospects for inflation moving silver prices in both directions. The most recent FOMC minutes did little else than reaffirm Yellen’s words in last month’s post-FOMC meeting press conference where she stayed firm on a commitment to keep interest rates at their near-zero level for a “considerable time.”

And the silver market responded in kind, trading up on the day and carrying that momentum into this morning.

In June’s press conference Yellen’s “downplaying of inflation,” as President and Chief Operating Officer (COO) of Asset Strategies International in Rockville, Md., Richard Checkan told Money Morning, was a big part of the June rally, which saw a jump following the meeting.

“There are no real supply and demand changes,” Checkan said. “I think it’s more a reaction to the sound bites.”

Silver Price Stands to Gain from Fed’s Inflationary Policies

Silver, like gold and other precious metals, is seen by investors as an inflation hedge, and at a time when the Fed has kept rates low and pursued a highly accommodative monetary policy, the economic environment is ripe for an accelerated increase in prices.

The growth of the Consumer Price Index (CPI) shows inflation running at a 2.1% year-over-year rate, said Money Morning Resource Specialist Peter Krauth, and at that rate it could climb to 3% late this year.

“Could inflation get out of hand? There’s a strong possibility,” Krauth said.

And with the recent June rally for not only silver, but also gold – which silver moves in tandem with, as both attract inflation-minded investors – we could be in the midst of an inflationary period.

“It’s still early, but just maybe these are signals that inflation is becoming entrenched,” Krauth said.

The Fed isn’t the only actor behind silver’s rise. There was also a lot of activity by investors who were liquidating their short positions and adding to their long positions, just following a bearish cycle where silver prices fell below $19 in late May, Jeffrey Christian, a managing partner at the CPM Group told Money Morning.

“What we mostly saw was the price rising over the last couple weeks due to short covering,” and, “you saw fresh long buying,” Christian said.

Silver is not only an inflation hedge for investors, but also an important metal in the industrial production of items like jewelry and silverware, providing demand from multiple sources. But the summer months tend to soften both trading and fabrication.

“Investment demand and fabrication demand have strong seasonality and you tend to see the weakest period of demand for silver in July and August both from investors and industrial users,” Christian said.

Despite being well into the summer months, silver has yet to see a big sell-off or a significant drop in prices. As of 11:36 a.m. EDT, the silver price was around $21.40, up 14.3% from silver’s early lows in early June.

More on Precious Metals Investing: Money Morning recently detailed for our Members the importance of owning gold now – and delivered a two-part “cheat sheet” that outlines the right amount of gold for your portfolio. You can get that gold investing guide – for free – here.