Silver stabilises above $25.00 mark following the Fed

Spot silver (XAG/USD) prices saw volatility around the time of the open of US cash equity trade on Wednesday, with prices breaking below a key area of support around the $25.00 level that had held up since a week ago and dropping to lows around $24.70. However, the move below $25.00 was fleeting and XAG/USD prices were soon back above the big figure. At present, spot silver trades around $25.20 with losses on the day of around 30 cents or 1.2%, with losses predominantly as a result of a stronger US dollar.

Driving the day

Though it was the main focus of the day, the Fed rate decision at 19:00GMT only had a very minimal impact on precious metal price action; as expected, the Fed kept policy settings unchanged (rates at 0.0-0.25% and QE at $120B per month) and not much was changed in the statement of any consequence (the Fed made a nod to the recent deterioration of economic conditions and noted the importance of vaccinations to the outlook). In the press conference, Fed Chair Jerome Powell did not reveal too much new information either; on the Fed’s new Average Inflation Targeting policy, he reiterated that it is too early for the Fed to be talking about tapering its asset purchase programme, he played down the idea that the stock market was a bubble (as you would expect him to) and noted that the path of the pandemic (the spread of the virus and mass vaccination efforts) are key to the outlook (also as you would expect him too).

The main driver of precious metal downside was the stronger US dollar, which moved higher as a function of nervousness in risk assets, namely European and US stock markets. Concerns of over-valuation seemed to drive the move and even Fed Chair Powell was pressed to give his opinion on stock market valuations, to which he seemingly attempted to reassure the market that lofty prices are more a result of vaccine, economic and fiscal stimulus optimism as opposed to low rates. Stock markets did not buy this reassurance and continue to press lower, even now, an hour after Powell stopped speaking. USD upside has tapered off in recent trade, however, helping spot silver stabilise around $25.20.

Looking forward, US data will be in the spotlight tomorrow, with preliminary Q4 GDP out at 13:30GMT the main focus. Precious metals could be choppy as a function of any volatility seen in the US dollar, but it is worth noting that, at present, markets are more forward-looking and seem to care less about backward-looking data.