Will Silver Keep Heating Up?

The price of silver rose during last week and reached its highest level this year. Will the silver market continue to rally? Let’s examine the recent news that may affect the price of silver (SLV).

The recent recovery of the price of silver has reflected in the rise in demand for silver ETFs such as iShares Silver Trust. During February, the Silver Trust’s price increased by 13.6%, and the amount of silver in the Trust rose by 1.5% to 164.24 tons. Silver related investments such as Silver Wheaton (SLW) also rallied during this month – the stock is up by 19%, up-to-date. Looking forward, the changes in the U.S dollar, gold price, and the FOMC’s policy could be among the factors affecting the direction of silver. Let’s further explore these factors.

The Fed’s policy and silver

The decision of the FOMC to taper QE3 in the past two meeting has started to slowly affect the yields of U.S long term securities. Conversely, the price of silver doesn’t seem to be affected by the FOMC’s mini-taper. Silver and U.S long term securities are considered safe haven investments. But the demand for silver as an investment hasn’t diminished, even though the market sentiment seems to have shifted towards risk seeking. The chart below shows the movement of the price of silver and U.S 10 year treasury yields during February.

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