Silver Tracks Long-Term Interest Rates, Not Fiscal Stress

The recent move in silver prices has been linked to changes in long-term interest rates rather than fiscal stress. This is according to The Golden Meadow research, which has tracked this link through three issues now.

In September, the Treasury bought $5.2 billion of long bonds on September 10, but long-term yields rose anyway. This was a test of the hypothesis that silver may respond to how officials react to fiscal stress rather than to the stress itself.

The research found that when the Treasury or Fed steps in to hold borrowing costs down, investors read this as money being printed to cover the deficit, causing silver prices to rise. However, once the Fed moved to tighten monetary policy, short-term rates rose first, and control of long-term rates went back to the Fed.

The Treasury's buyback program has been seen as a way to support trading in the bond market, but it cannot out-signal the Fed. When long yields ease for any reason, including cheaper oil, silver prices rise even if the Fed raises interest rates.