Silver Bullion: This Is Why Silver Prices Are Getting Smoked

Silver BullionSilver Prices Getting Smoked on Monday

Silver prices plunged Monday as a stronger U.S. dollar and worries of looming interest rate hikes sparked a major sell-off across the commodities space.

On Friday, New York Federal Reserve President William Dudley said the central bank might still raise interest rates later this year. In an interview with The New York Times, Dudley said two rate hikes remain a “reasonable expectation” despite signs of a slowdown in the labor market. (Source: “New York Fed Chief Believes the Central Bank Is on the Right Track,” The New York Times, May 8, 2016.)

“I think the general story of the economy over the last few years is very much intact,” he explained. “I think we’re still on track.” (Source: Ibid.)

The news sparked a wave of selling in precious metals. Silver bullion dropped 2.95% to $17.01 per ounce, erasing all of the metal’s gains from the following Friday’s weak non-farm payrolls data. Spot gold prices were also under pressure, plunging 2.3% to $1,264 per ounce.

Silver prices have soared 23% year-to-date as expectations for a rate hike have faded. Dudley’s interview throws a major wrench in that thesis. Rising rates tend to weigh on silver prices because they lift the opportunity cost of holding non-yielding bullion.

Traders will be watching Dudley’s upcoming speech on Tuesday. The Federal Open Market Committee member is due to participate in a panel discussion about the international monetary system in Zurich. If Dudley doubles down on his hawkish comments, it could spark another sell-off in silver prices and the entire precious metals space.