As the Dollar Pulls Back, Consider Exposure to Silver

After the Federal Reserve decided to stand pat on interest rates, for the time being at least, the U.S. dollar pulled back, giving silver and the Global X Silver Miners ETF (SIL) a chance to shine.

“Silver prices consolidated on Tuesday as the dollar eased and U.S. yields declined,” an FX Empire article explained. “The yield differential moved against the greenback as European yields outpaced U.S. yields. Copper prices also rallied on Tuesday, which helped buoy Silver prices. Fed Chair Jerome Powell was on the hill and told Congress that much of the inflation that has increased has come from categories affected by the pandemic.”

Per the fund’s description, SIL seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Solactive Global Silver Miners Total Return Index. Despite the recent weakness in silver thanks to a stronger dollar and a flight from safe haven assets like precious metals, SIL is still up 23% over the last 12 months.

SIL 1 Year Performance

Transitory Inflation?

Investors can also use silver as an inflation hedge while the Fed figure out where it stands on inflation. Even though the Federal Reserve has said it won’t look to raise rates until the year 2023, the prevailing sentiment is that it will have to eventually.

As investors look to add more gold to hedge against inflation in the coming months, those residual effects could also spill over into silver. ETFs like SIL provide exposure without the price volatility of owning the actual commodity.

“Fed Chair Jerome Powell was on the hill on Tuesday providing testimony and question and answers to Congress,” the article said. “The Fed Chair told the committee that inflation is transitory and most of the inflation that has occurred has come from items impacted by the pandemic.”

“Used car sales surged as people scrambled to avoid public transportation,” the article added. “Gasoline prices rebounded as the locked-down were lifted. Congress also pressed the Chair on what likely transitory meant and the percentage that it would only be high for a small period. The Fed said once the reopening is not a reopening anymore than inflation would die down.”

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