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Silver Futures Prices Spike After Fed Statement Hammers Dollar

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July 27th, 2017

Silver prices rose sharply on Thursday, as the dollar fell to 15-month lows in the wake of the Federal Reserve’s latest policy decision.

Silver futures for September delivery gained 30 cents, or 1.8%, to $16.76 a troy ounce at 7:36 a.m. ET. That puts the grey metal on track for its highest settlement in a month.

The futures contract fluctuated between $16.60 and $16.74 through the overnight session.

Gold prices surged to six-week highs, as bullion returned to its long-established inverse relationship with the dollar. December gold, the most actively traded futures contract, rose $13.30, or 1.1%, to $1,268.90 a troy ounce.

The U.S. dollar index got whacked in overnight trade, where it reached its lowest level since April 2016. The dollar index (DXY) later pared losses and was last seen trading flat.

Precious metals have long traded in the opposite direction of the dollar. However, that relationship broke down recently, with gold and silver failing to capitalize on the greenback’s protracted slump. The greenback is down nearly 9% year-to-date, making it one of the worst-performing currencies of 2017.

On Wednesday, the Federal Reserve kept interest rates on hold and indicated that its balance-sheet reduction program would begin “relatively soon.” The central bank ran up its balance sheet to a record $4.5 trillion following the 2008 financial crisis. While the Fed’s bond-buying program ended in 2014, officials have yet to take definitive steps to wind down their balance sheet.

Fed watchers say the central bank could announce its new plan at its next meeting in September. The September policy decision will be handed down alongside revised quarterly projections covering gross domestic product (GDP), inflation and unemployment.

The International Monetary Fund (IMF) recently downgraded its outlook on the world’s largest economy. U.S. GDP is now expected to grow just 2.1% this year, down from the previous estimate of 2.3%. The Washington-based lending institution also lowered its 2018 outlook for U.S. growth to 2.1% from 2.5%.

 - Sam Bourgi at Economic Calendar.

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