Will the Fed’s Policy Drag Down Silver?

The price of silver changed course and bounced back during last week. But will the recent rally of silver continue? Let’s examine the recent news that may affect silver and the silver ETFs.

The recent rally of silver has reflected in the rise in demand for silver ETFs such as iShares Silver Trust (SLV). During last week, the Silver Trust’s price increased by 2.7%. Other Silver investments such as Silver Wheaton (SLW) also rose by 6.1%. Looking forward, the upcoming FOMC meeting economy and the direction of the U.S dollar could be among the factors affecting the silver market. Let’s further explore these issues.

FOMC’s monetary policy

In the upcoming FOMC meeting (between March 17th and 18th) its members will decide whether or not to taper again the Fed’s asset purchase program. The current expectations are that the FOMC will taper QE3 by $10 billion. Thus, the long-term asset purchase program will drop to $55 billion a month. After all, the recent non-farm payroll report was slightly better than anticipated and the FOMC is likely to maintain its line of slowly reducing its asset purchase program.

In the past couple of meetings, following the FOMC’s decision to taper QE3, the price of silver tumbled down. As indicated in the table below.

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