Tags: Precious Metals

Silver Prices Today Have Ben Bernanke to Thank

By , Contributing Writer, Money Morning •

Thanks to that "party animal" Ben Bernanke, silver prices today are enjoying a nice bounce.

That's because the U.S. Federal Reserve chairman, along with the other members at the Federal Open Market Committee (FOMC) meeting yesterday, decided to keep the quantitative easing (QE3) flowing steady with $85 billion of bond buying per month.

After the Fed announcement, silver prices rallied by 5.5% to more than $23 an ounce. That's the precious metal's biggest one-day gain since June 28.

Kit Juckes, global strategist for SocGen, said in a report quoted by Bloomberg, "Bernanke had threatened to take away the punch bowl and bring the QE party to an end. But he's changed his mind, found more happy juice, and told us all to 'Party on, dude!'"

The FOMC said in a statement it would wait for "more evidence that [economic] progress will be sustained before adjusting the pace of its purchases" and pointed to recent upward moves in interest rates as "restraining economic growth."

Bernanke continued to send mixed messages about tapering, though, which eventually could hurt silver prices.

On the one hand, the Fed chairman said the decision to not taper was a "precautionary step" because the Fed was still worried about U.S. economic growth. The Fed in June downgraded its outlook on growth for 2013 to 2.3% from 2.5% and for 2014 to 3% from 3.3%.

But Bernanke also said that even if the economic data continued along its present path, a taper could come "possibly later this year."

Money Morning Nails It

The Fed's decision to keep the QE3 train running full speed caught most of Wall Street's analysts off guard, most of whom were expecting a token $10 billion taper move.

But Money Morning Chief Investment Strategist Keith Fitz-Gerald was not surprised at all. For months, he has told anyone who would listen that the Fed would do nothing.

"The [financial] markets have become so addicted to cheap stimulus that I don't believe Bernanke has the guts to take his foot off the proverbial gas pedal," Fitz-Gerald said in June.

The Federal Reserve's loose money policies are one reason we remain bullish on silver prices today.

Yet there is a more behind the strength in silver than just the Fed's money-printing policies...

Silver Prices Today Beyond the Fed

For proof that silver prices today aren't entirely reliant on the Fed's largesse, one need look no further than the silver mining company Pan American Silver (Nasdaq: PAAS).

Last month it announced hedges on 20% of its silver production. PAAS had entered into forward contracts for 5.3 million ounces of silver at an average price of $20.43 an ounce.

But just three weeks later, Pan American Silver reported it was closing out its hedges. By the way, Pan American Silver did a similar move with its gold hedges.

The company said it made these moves because it felt it was sending the wrong message to investors about the future course of silver prices.

But was that the real reason?

Of note here is the fact that the most well-known player in the silver market, JPMorgan Chase (NYSE: JPM), is one the primary advisors to PAAS.

And in recent months, it, too, has been eliminating much of its massive short position in silver.

Hmm... does this signal some strong upward move in silver prices coming soon?

We can't be totally sure. After all, the Wall Street anti-metals PR machine continues to roll on, feeding the negative speculation on both silver and gold.

The pundits are already warning precious metals investors about the coming Fed taper in December. Of course, they were wrong about that this time around.

In any case, a taper is unlikely in Ben Bernanke's last meeting as Fed chairman. He would likely want to send the same message he has throughout his term -- that the money spigots remain wide open.

And that will continue to fuel silver prices today.

Note: Many investors don't realize that silver has become much more popular than gold lately. Last month millions of dollars left gold funds while silver attracted money like a magnet. Find out why silver has replaced gold as everybody's favorite precious metal...

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