Silver prices today (Friday) were modestly higher as bargain hunters stepped up to buy the dips. In early trading, spot silver last traded up $0.11 to $20.45.
It's been a volatile and punishing week for silver.
In morning trading Thursday, silver futures for May delivery slumped 2.3% to $20.355 an ounce, on pace for the biggest drop since March 7. That put white metal prices heading for their fourth consecutive day of losses, the longest streak since Nov. 13.
Thursday's rout was blamed on U.S. Federal Reserve Chairwoman Janet Yellen, who gave investors concern over a sooner-than-expected interest rate hike at this week's Federal Open Market Committee (FOMC) meeting.
Yellen said Wednesday the central bank's stimulus program could end this fall, and benchmark interest rates could rise about six months later. Policy makers also continued with tapering, cutting monthly bond buying by $10 billion to $55 billion.
Quantitative easing and rock-bottom interest rates have been a catalyst for silver since 2008. Silver prices started to slip in May 2013 after the first mumblings of a taper.
Yellen's comments sent the dollar soaring against all major currencies. A stronger dollar makes silver more expensive in other currencies, which can weigh on demand.
Also pressuring the white metal this week are what seem to be easing tensions between Ukraine and Russia.
Crimeans cast ballots Sunday overwhelmingly in favor to leave Ukraine and join Russia. Things were relatively quiet in the Ukraine city following the vote. Thursday, Ukraine said it plans to reinforce its eastern border with Russia and withdraw troops from Crimea, in effect ceding control of the Black Sea peninsula.
That took some of the fear premium out of silver.
Silver had marched higher in recent weeks as investors stocked up on the safe-haven, store-of-value asset amid geopolitical anxieties. Silver is seen as a hedge against political and economic uncertainty because it tends to retain its value during periods of instability.
But selling silver based on this week's scenarios is likely to be an overreaction.
For one, the Fed's tone is based on what the economy might look like in several months to a year out. It's not based on the present state of the economy, which remains fragile.
Unemployment still sits at an unhealthy 6.7% - and that's just the government-reported number, which we know isn't the true indication of how many people are jobless. And the Fed's favored measure for gauging inflation's underlying trend is up just 1.1% over the last 12 months, comfortably below the central bank's 2% target (although the 1.1%, of course, isn't what investors feel in their wallets - but that's another story).
Moreover, the sticky situation in Ukraine continues to simmer. Thursday, pro-Russian crowds seized two Ukrainian warships. In response, German Chancellor Angela Merkel said the European Union was readying further sanctions against Russia.
That's why despite this week's slip in silver prices, the white metal is still up for the year - and likely to go higher.
Silver prices climbed as much as 12% earlier this year before giving back gains. Despite the slip, silver still remains up roughly 7% year to date.
Pushing silver prices higher is robust demand.
The U.S. Mint's silver coin sales got off to a strong start in 2014. First day sales of the popular 2014 American Eagle silver bullion coins nearly reached weekly capacity when they debuted in mid-January.
During the first week of March, Eagle coin sales rose 1,100,000, marking the second-highest weekly gain since the debut week of the 2014 issue. That pushed year-to-date sales to a whopping 9 million. That was more than the annual totals for the same period in some 15 years, going back to the series start in 1986.
Additionally, silver exchange-traded fund (ETF) holdings are up about 0.5% to 625 million ounces so far this year. That leaves silver ETF holdings just 3% below the all-time peak in October 2013. Silver is considered by some investors as a less expensive and leveraged version of gold.
Since 2000, on average, during months when gold prices have increased, silver gained about 1.4 times the price of gold. Last year, silver declined about 1.3 times more in percentage terms than the price of gold. That's why savvy investors have been bulking up their positions in silver ETFs this year, explains ETF Securities.
It's not just physical silver that's giving investors gains.
Silver mining ETFs, which shed about 50% in 2013, have gained about 25% since January. In contrast, gold mining ETFs are up about 22.48%. Moreover, junior silver ETFs have surged about 42% in the same time frame.
Read why Money Morning Resource Specialist Peter Krauth believes silver has much more upside here.
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