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Silver prices have rebounded about 28% since the lows of late June, and are currently trading at around $23 an ounce.
This move was key for silver prices – it means the metal broke out above its 50-day moving average.
Barclays' technical analysts pointed out that last week was silver's best week since 2011, with a gain of 14.3%.
Silver price gains actually have outpaced gold in the past few weeks. Since Aug. 6, the most active September silver futures contract rose about 18%. In contrast, the December gold contract climbed by roughly 6%.
The question is – will a quantitative easing (QE) tapering by the U.S. Federal Reserve derail rising silver prices?
Federal Open Market Committee (FOMC) meeting minutes released today (Wednesday) showed Fed officials agree with Chairman Ben Bernanke: the economy should improve by the year's end, and the central bank will start to wrap up its $85 billion per month asset purchases.
When exactly the QE taper will start is still unknown. The next FOMC meeting is Sept. 18 and 19, but it's not the year's last…
Silver got pulled down along with gold when the talk in the financial markets began about the Federal Reserve tapering their purchases of bonds from the $85 billion-a-month level.
But investors should understand that there's more to the silver market than the Federal Reserve.
Silver Prices and the Fed QE Taper
The kind of reductions in liquidity that will result from QE tapering are typically bad for precious metals in the short term and for stocks as well, eventually.
But silver should perform well whether the Fed tapers or not.
One reason: the price of silver is tied to industrial use. In fact, in contrast to gold, more than 50% of silver's annual consumption comes from industrial activity.
For example, silver is particularly useful in electronics because of its ability to conduct electricity.
The metal is also used extensively in solar panels, accounting today for about 6% of total industrial silver usage. From less than one million ounces of demand in 2000, silver demand from the solar industry in 2012 soared to more than 47 million ounces.
And here's where China may again become a force…