Silver Lining for U.S. Economic Data as Metal Defies Meltdown

  • Metal overperforms gold when sentiment turns positive: Melek
  • Silver climbs above 200-day average, erases 2015 losses

Silver is becoming the best bet among major commodities, thanks to disappointing U.S. economic data.

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

Silver touched the lowest since 2009 in August, as momentum in the U.S. 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 U.S. economy.

The odds of the Fed increasing rates in December fell to 39 percent on Thursday, from 77 percent 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,” 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 percent higher at $16.094 an ounce on the Comex in New York. Prices may extend gains, with the next level of resistance seen at $16.25, Melek said.

The metal climbed 3.2 percent this year through Wednesday, and was the best performer on the Bloomberg Commodity Index of 22 raw materials.

While holdings in gold-backed exchange-traded funds have dropped 42 percent from their peak in December 2012, assets in silver ETFs are little changed compared with levels then, data compiled by Bloomberg show.

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