Last week, the Federal Reserve did something many analysts and investors were anticipating: an interest rate hike. It was the first one since 2023, except back then, it was the end of a tightening cycle, whereas today, there are still concerns of more rate hikes in the future, depending on what happens with inflation. Fed Chair Kevin Warsh has been clear: the goal remains to get to 2%.
Silver is a precious metal that investors have loaded up on in the past, typically when they want to diversify and are in search of ways to reduce exposure to equities. Late last year, amid turmoil between the Fed and the U.S. president and concerns about rising stock valuations, silver surged in value. Ultimately, it would reach all-time highs in January. While silver is down significantly since then, the iShares Silver Trust (NYSEMKT:SLV), which tracks silver, has risen more than 50% over the past 12 months.
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The big question investors may be wondering right now is whether silver could be due for another rally, now that interest rates have risen and may be rising further. Here’s what I think may happen.
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Interest rates may not push silver prices higher, but questions about Fed independence might
An increase in interest rates alone doesn’t make silver a more compelling asset. Arguably, it makes it less attractive as higher rates make it easier for investors to secure better returns without taking on much risk. And earlier this year, silver has shown that it can be highly volatile and risky.
In late January, when President Donald Trump announced Kevin Warsh as his pick for the next Fed Chair, taking over from Jerome Powell, that’s when silver prices began to nosedive. It was the market’s confidence in Warsh that seemingly prompted investors to withdraw money from silver assets and return to equities.
Warsh hasn’t cut rates as Trump has wanted, and while things remain calm right now, I could see a potential conflict brewing if Warsh raises rates again, as many people expect. That turmoil could be what sends the price of silver higher.
Silver has been steady, but I expect it will take off
The price of silver has been trading around the $60 range for the past couple of months, and while there has been some volatility, it hasn’t been much. But a potential conflict between the U.S. president and the Fed Chair, however, could be what changes that. I believe that may be inevitable, which is why I think silver may end up rising before the year is over.
Investing in the iShares Silver Trust can thus be a good option for investors seeking safety or looking to hedge against market uncertainty and instability.
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The Fed Just Raised Interest Rates for the First Time Since 2023. Here’s What That Could Mean for the Price of Silver was originally published by The Motley Fool
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