It looks as if traders are booking wins early ahead of the weekend. Spot silver was down more than 1.6% on Friday morning, tracking losses from the Asian session. The metal had gained spectacularly in the wake of the Federal Open Market Committee’s decision to avoid any suggestion of tapering.
And yet, I continue to wonder what will drive silver higher from here. Yes, the Federal Reserve hasn’t opted for tapering yet. There is a possibility that they won’t even do it this year; some are saying that any hint of a reduction in loose monetary policy (this is not the same as tightening) will cause a further spike in interest rates and undo much of the good work that quantitative easing (QE) has achieved in terms of confidence, by restoring a degree of normality to the global financial system.
However, the Fed is not committing more money to QE3. The amount remains at $85 billion a month; still a very substantial amount, but this is already priced in. Without an increase in the size of asset purchases, silver (and gold too) may find it difficult to move back towards the highs seen in the heydays of 2011 and 2012.
Silver has faltered at $25 per ounce this year, and now looks to be heading lower once again. The excitement of the Fed meeting is out of the way, removing a key catalyst for higher prices. Without any major new developments, the summer lows of around $19 may be tested before the autumn is out.