The rapid ascension of the dollar over the course of the last year and reduced interest in holding precious metals as a hedge against the latest economic developments has seen silver prices broadly underperform. Precious metals have historically managed to see values hold up in times of uncertainty and market volatility, but as current events show, these are two attributes that are notably absent with silver prices on the verge of retesting lows last seen in 2009. Without a sustained period of volatility that forces a change in the outlook for interest rate policy, silver prices are likely to remain subdued.

The Fundamental Picture

The unwind that began in China earlier in the month has quickly spread to other asset classes, with the volatility stretching across the globe. The shakiness of the market has claimed many victims already, especially as it reflects a situation that combines the softness in the underlying economy with margin calls in financial assets. This is only a natural reaction of financial markets considering the preposterous valuations in certain assets, namely equities which have seen prices disconnect from reasonable levels. This has led to the heightened risk of a deeper correction, one that would typically catalyze a rebound in risk-aversion assets that benefit from times of turmoil. While, silver prices have managed to stage a modest rebound off of last week’s lows, comments from the Jackson Hole Summit may foreshadow further losses in precious metals as the Fed pivots towards more hawkish policy measures as the economic improvement merits a change in the path of rates.

Over the weekend, policymakers from across the globe convened in Wyoming for the annual conference of Central Bankers devoted to discussing the major policy issues. One of the most important speakers was Federal Reserve Vice Chairman Stanley Fischer, the man who sits directly under Fed Chair Yellen. In specific, Fischer covered inflation, stating outright that the Federal Reserve did not require inflation to rebound to the long-term target of 2% before raising rates. This infers that a hike could be closer as opposed to farther and reopening the door for a September hike. With the uptick in US gross domestic product the second quarter recorded last week, the stage is increasingly set for a 2015 hike which could dent precious metals prices further. When combined with 0.20% annualized inflation according to recent consumer price figures, the catalysts for a rally in silver outside a protracted period of volatility remain limited.

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