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Silver Price Boosted on Federal Reserve Statement

Posted on 2012-11-05, By A-Best Staff

By Michael Montgomery—Exclusive to Silver Investing News

Fed Reserve Silver pricesA mixed bag of economic data and news supported the price of precious metals on the day. Silver made gains of 0.8 percent, to $34.48 per ounce. The US dollar index was down on the day, despite positive employment data. Ongoing European economic concerns helped support gold much more than silver. While the safe haven investment side of silver is strong, the concerns of an economic slowdown have tempered upward price movements. Statements made by Federal Reserve Chairman Ben Bernanke hinting towards another potential round of stimulus measures have market observers pointing towards a tremendous upside potential for silver.

US economic outlook and Fed statements

More jobs were added in October than had been previously projected. Private employers added 110,000 jobs topping economists’ expectations of 101,000. The ADP National Employment report also increased data from September’s jobs data to 116,000 from the previously reported 91,000. While the additions are good news for the US economy, they are not large enough to satisfy the Fed that the economy is heading in the right direction.

“You’re more or less treading water here, just enough to keep the unemployment rate steady,” stated Scott Brown, chief economist at Raymond James in St. Petersburg, Florida, adding, “”We would really like to see stronger growth to get the unemployment rate down substantially, but the Fed is not expecting that to happen any time soon.”

A recent analysis of the slow US job growth predicts that full employment might not be achieved for 12 years. This gloomy prediction is underscored by the recent Fed projections that have cut growth for this year to between 1.6 to 1.7 percent, down from 2.7 to 2.9 percent. The fed also cut growth projections for 2012 to 2.5 to 2.9 percent down from 3.3 to 3.9 percent.

The Federal Open Market Committee (FMOC) voted to take no action at this time. However, the struggling economic recovery in the US has also prompted the Mr. Bernanke to hint that additional monetary stimulus may be needed.

Federal Open Market Committee member and Chicago Fed President Charles Evans, was the sole member to vote against the Fed’s decision to take no action because he supported “additional policy accommodation at this time,” according to the central bank’s statement.”

Although no action was taken, it seems almost certain that the Fed will act soon. Mr. Bernanke mentioned buying mortgage-backed bonds. The Fed hopes that such purchases would help boost home-buying and consumer spending. ‘Operation Twist,’ which sold short term bonds in order to purchase long term bonds, is a neutral factor for precious metals as there is no increase to the money supply, reducing the inflationary effects.

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