Silver price gets a lift from weak US economic data

Silver bars at the Istanbul Gold Refinery in Turkey.
Silver bars at the Istanbul Gold Refinery in Turkey. PHOTO: BLOOMBERG

NEW YORK (BLOOMBERG NEWS) - Silver is becoming the best bet among major commodities, thanks to disappointing United States economic data.

The precious metal climbed above its 200-day moving average on Tuesday (Oct 6) for the first time in more than four months, a day after erasing this year's losses, amid mounting speculation that the US Federal Reserve will put off tightening monetary policy this year. Higher rates crimp the appeal of precious metals because they do not pay interest or dividends, unlike bonds or equities.

Silver touched the lowest since 2009 in August, as momentum in the US economic recovery bolstered the case for the Fed to raise rates for the first time since 2006. The metal reversed course after a government employment report last week missed economists' forecasts, adding to signs the global slowdown may be rippling through the US economy.

The odds of the Fed increasing rates in December fell to 39 per cent on Wednesday (Oct 7), from 77 per cent two months earlier, according to Fed-fund futures data compiled by Bloomberg.

"Not only is there likely a delay in the Fed rate hike, from the market perspective, but any increases are going to be modest," Mr Bart Melek, the head of commodity strategy at TD Securities in Toronto, said in a telephone interview. "It's not unusual for silver to outperform in good times. It under-performs when sentiment is down and it over-performs when sentiment turns."

Investors were likely closing bets on silver's price decline, as the metal stayed above the 200-day moving average through Wednesday, when it closed 0.7 per cent higher at US$16.094 an ounce on the Comex in New York. Prices may extend gains, with the next level of resistance seen at US$16.25, Mr Melek said.

The metal has climbed 3.2 per cent this year, and is the best performer on the Bloomberg Commodity Index of 22 raw materials.