Silver Wheaton has been struggling since late 2012; and the struggle may have just worsened. Unfortunately for Silver Wheaton, the United States recently produced solid home building data; causing declines in silver, and as a result, Silver Wheaton. Today, we'll talk about what we saw from new home data in the United States for July, how this correlates with the price of silver as well as Silver Wheaton, and what we can expect to see moving forward.
US Home Building Data
While existing home sales may be down in the United States, that's not the case for new homes. As a matter of fact, housing starts in the United States are doing incredibly well. In the month of July, new homes in the process of being built increased by 0.2% to a seasonally adjusted annual rate of 1.21 million homes according to the Commerce Department. Single family homes were the reason for the entire gain. Ultimately, this pushed single family homes up to 12.8% in the month of July; which is the highest rate we've seen since December of 2007.
How Does This Have Anything To Do With Silver Wheaton?
The amount of new homes being built is an incredibly important metric for those gauging the stability of the United States economy. Because new homes in the process of being built increased in the month of July, many economists are now looking at the United States economy in a more positive light. As a result, the value of the United States currency, the USD increases. This is where things tie into Silver Wheaton.
Silver Wheaton's primary product is silver and silver equivalent. Therefore, the value of Silver Wheaton has a strong positive correlation with the value of silver. Simply put, when the value of silver climbs, so to does Silver Wheaton. Adversely, when the value of silver declines, Silver Wheaton stock feels the pain.
With that said, it's important to keep in mind that silver, as with many other currencies is highly dependent on the value of the United States dollar. After all, silver and most other commodities are priced using the United States dollar. This means that as the dollar increases, silver becomes more expensive in other nations. Ultimately, a higher USD value leads to lower demand for silver. As a result, the value of silver declines; and because silver and Silver Wheaton have a positive correlation, the value of Silver Wheaton's stock declines as well.
How Long Are Declines Likely To Last?
That's an incredibly hard question to answer because there are so many moving parts in the equation. However, there are a few things that we know. First and foremost, US consumers are buying more new homes which is bad for silver. Adversely, the US Federal Reserve is expected to increase interest rates in September. If this was to happen, the value of the USD would almost surely decline. Also, the stock market would be put through a bit of a hard time. Both of which could cause increases in the value of silver. So, in my opinion, the value of silver, and therefore Silver Wheaton, really depends on what the US Federal Reserve decides to do in September. If the Fed decides to increase interest rates, we can expect to see growth in Silver Wheaton. Adversely, if the Federal Reserve decides to wait to increase rates, we could see more long term downtrends in the value of silver as well as Silver Wheaton.
What Do You Think?
Where do you think Silver Wheaton is headed and why? Let us know in the comments below!
Keep informed and check out the latest financial news