Silver Prices Face Pressure from Fed with Payrolls Due Later This Week

With the U.S. dollar firming up following hawkish commentary from the Fed on Friday, and strong payroll numbers expected later this week, the iShares Silver Trust ETF (NYSE:SLV) looks primed for a continued pullback.

Fed chair Janet Yellen said late last week that the case for raising interest rates had gained steam as of late. Still, the speech was slammed by many market pundits, including “bond king” Bill Gross, who are still calling the Fed’s continued “rates rising” bluff.

Higher rates would mean a stronger dollar, which in turn would slam the value of precious metals like silver. As the U.S. dollar’s value increases versus foreign currencies, the price of silver falls in U.S. dollar terms.

Rising rates could also entice more investors into the bond market, lured by higher yields. Silver has been a popular option this year partially because yields around the globe are so low.

Fed member Stanley Fischer noted that this Friday’s jobs report could push the Fed over the brink in terms of normalizing monetary policy. That report will be delivered Friday at 8:30 am ET, and employers are forecast to have added 175,000 workers to payrolls in August. The unemployment rate is expected to edge down slightly, to 4.8% in August from 4.9% in July.

Market-implied rate hike odds are rising to multi-month highs as a result.

Investors have also preferred gold to silver this month in a big way. Gold’s premium over silver currently sits around 70.88, up from 66.00 at the start of the month. This ratio means that an ounce gold is worth 70.88 ounces of silver, suggesting that the yellow metal will continue to outperform the gray metal in coming months (whereas in the first six months of the year, the opposite was true).

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SLV shares fell $0.04 (-0.23%) to $17.68 in morning trading Monday. The largest ETF tied to the spot price of silver has still risen 34% year-to-date, despite a recent 10% correction from its yearly high.

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