After much speculation on “Will it or won’t it?” on Wednesday, the Fed announced its decision to keep interest rates unchanged. It sent precious metals on a high with gold trending upwards to a two-week high of $1,337.50 an ounce and silver closing 3% higher at $19.80.
Fed Stays Put on Rate Hike
Per the statement, factors have improved since its July meeting with solid job gains and increased household spending. However, business-fixed investment remains soft and inflation is trending below the committee's 2% longer-run objective, partially exhibiting earlier declines in energy prices and prices of non-energy imports.
The Fed, chaired by Janet Yellen, stated that though that the case for a rate hike has strengthened, the committee has decided to wait for the time being, to wait for further evidence of continued progress toward its objectives. The Federal Reserve is thus maintaining the current target rate for the federal funds rate at 0.25% to 0.5%.
The Fed anticipates economic activity to expand at a moderate pace and improved labor market with gradual adjustments in the stance of monetary policy. Though inflation will remain low in the near term, it will eventually rise to 2% over the medium term as the transitory effects of past declines in energy and import prices wane and the labor market strengthens further.
Impact on Markets and Metals
The markets cheered the Fed’s dovish stance. As of Wednesday close, the Nasdaq hit a record high, adding 53.83 points to 5,295.18 while the Dow Jones Industrial Average gained 163.74 points to close at 18,293.70 and the S&P 500 shot up 23.36 points to 2,163.12. Precious metals gained on the back of the dovish stance and a weaker dollar. It’s a known fact that a delay in raising interest rates works in favor of precious metals like gold and silver which produces no income but rather relies on price appreciation to attract investors.
Silver Will Continue to Shine
We believe silver will continue to outperform gold in the coming months riding on the uncertainty of rate hikes in the future as the Fed has kept the possibilities open for a rise this year. Further, Silver has varied industrial applications which drive its demand significantly.
On the other hand, global mine supply production is projected to fall 5% in 2016 – the first drop in global silver mine production since 2002. Thus, a potential silver deficit provides a solid ground for silver price gains this year. Price appreciation will also be supported by a flight to safety amid volatile equity markets.
MINING-SILVER Industry Price Index
Which Silver Stocks to Invest in?
We believe it would be a prudent to buy silver stocks that have surged on the Fed statement and have positive momentum going forward. As per our style score system, the Zacks Momentum Style Score indicates when the timing is best to grab a stock and take advantage of its momentum with the highest probability of success.
Back-tested results show that stocks with Style Scores of 'A' or 'B,' when combined with a Zacks Rank #1 (Strong Buy) or #2 (Buy) handily outperform other stocks. A top Momentum Style Score knocks out a lot of the screening process as it takes into account several factors including volume change and performance relative to its peers.
6 Silver Stocks on a Rally and Gaining Momentum
Flaunting a Zacks Rank #1 or #2 and a Momentum Style Score of ‘A’ or ‘B’ the following stocks are marching ahead, and still appear to have plenty of upside potential left. Further, these companies have been seeing positive interest from analysts of late.
Silver Standard Resources Inc. (SSRI - Free Report)
Based in Vancouver, Canada, Silver Standard Resources engages in the acquisition, exploration, development, and operation of precious metal resource properties in the Americas. The company primarily explores for gold, silver, zinc, and lead deposits.
SILVER STD RES Price