Despite Monday’s rally, silver and gold prices are falling yet again, perhaps pushing down towards the low benchmark of $1,080 an ounce that gold set mid-summer. Physical demand for both silver and gold remain high, so why are prices continuing to fall?
Well, one large factor is the upcoming Federal Reserve meeting, concluding Thursday, that will determine whether or not to increase the Prime Rate. Currently near zero, the Prime Rate is the rate at which the Fed lends money to other institutions, which, in turn, lend it to businesses and, eventually, individual consumers. An increase in the Fed Prime Rate will have ripple effects throughout the entire economy, including affecting those who buy gold and silver as investment vehicles.
Precious metals, unlike many other investments, do not yield any interest. Often their main appeal for investors is as a hedge. The current sink in metals prices is on account of investors waiting to hear the decision of the Fed this week. Look for silver and gold prices to fall further if the Fed decides to increase the Prime Rate. Of course, for investors who look to stockpile physical silver and gold, reduced prices can be a boon and this could be a great month to Buy gold and Silver while prices are low.