Silver Caps Biggest Two-Day Gain Since March on Fed Rate Bets

Silver futures capped the biggest two-day gain in more than six months, as the prospect of the Federal Reserve holding off on raising interest rates this year boosted demand for the metal as an alternative asset.

The bond market shows traders see only an 10 percent chance the Fed will raise rates at its Oct. 27-28 meeting, following a report Friday showing weaker-than-expected job growth in the U.S. The dollar fell against a basket of 10 currencies, and the Bloomberg World Mining Index of producers headed for the biggest four-day gain since 2013.

Silver fell to the lowest since 2009 on Aug. 26 amid concern that the Fed would raise rates in an improving U.S. economy, even as industrial demand for the metal ebbs amid slowing growth in China. Higher rates dent the appeal of silver because it doesn’t pay interest or give returns like competing assets such as bonds and equities.

“Silver was a little farther oversold” than other precious metals, Frank McGhee, the head dealer at Alliance Financial LLC in Chicago, said in a telephone interview. “The question is, does the Fed wait to the first part of the year. After the unemployment number on Friday, silver had more of a favorable bias in the short-term, expecting an interest-rate increase pushback to early 2016. That’s the expectation now.”

Silver futures for December delivery gained 2.9 percent to settle at $15.708 an ounce at 1:43 p.m. on the Comex in New York. The metal is up 8.2 percent since Thursday, the biggest such increase since March 20.

Fed fund futures show the odds of a rate increase in December fell to 37 percent from 43 percent a day before the jobs report.

Gold futures for December delivery climbed 0.1 percent to $1,137.60 an ounce on the Comex. On the New York Mercantile Exchange, platinum futures for January delivery added 0.4 percent to $912.90 an ounce, while palladium futures for December delivery dropped 1.2 percent to $689.20 an ounce.

“Silver has its precious-metals hat and industrial hat on, and both of those are in agreement,” McGhee said. “That will cause it to overrun gold.”

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE