By Melissa Pistilli – Exclusive to Silverinvestingnews.com

I don’t know what pains me more: my trip to the dentist this morning or silver tumbling down to $16.46/0z. Silver started the week in a state of duress closing yesterday at $16.89/oz. Monday, the dollar climbed to a seven-week high against several major currencies, which in turn further dampened the appeal of silver as a hedge against inflation.  Precious metals began selling off overnight as crude lost and the dollar gained.

Earlier today, markets were focused on this afternoon’s U.S. Fed’s interest rate decision. “The market is expecting no change,” said JP Morgan analyst Michael Jansen, “but looking for a small uptick in hawkish rhetoric. This could be US dollar supportive/metal negative.” The dollar has already gained against the euro for three straight weeks, following an all-time low on July 15.  A further rally by the U.S. currency could damage the investment demand for silver even more.

As many had anticipated, the Fed resigned to maintaining the current 2% interest rate. According to Jon Nadler, a senior analyst at Kitco Bullion Dealers, “as the U.S. dollar really did not do much” Monday as traders didn’t expect any change in the central bank’s stance, “today’s slippage is clearly (in most part) attributable to the goings-on in oil.”  And as the oil bubble deflates, it’s bringing commodities like gold and silver with it.

Yesterday, oil prices dropped nearly $5 to a three-month low below $120 a barrel after weather forecasts predicted that Tropical Storm Edouard would bypass major drilling platform and refineries of the Coast of Texas and not cause any serious disruptions to oil and natural gas output in the Gulf of Mexico.

Oil price pullbacks are also possibly due to investors sentiments that further drops in fuel demand are ahead as economic growth slows down around the world. “Lingering apprehensions about a global slowing phase have triggered the latest flight from commodities,” says Nadler, “and this particular one shows all the signs that it is more than just a temporary disillusionment among players.” In the U.S., the Commerce Department reported a sharp decrease in consumer spending for June as the high price of gasoline, food, and other commodities kept shoppers’ wallets closed.

While many might shy away from precious metals right now, Nadler says, “Where there is danger, there could also be opportunity.”  We’ll have to wait and see what this fall cycle has in store.

Canadian Mining Stocks

Drops in metal prices are no doubt taking a toll on Canada’s mining stocks, which experienced the biggest on-day decline today since October 27, 1997 as the S&P/TSX Metals & Mining Index fell 7.6% to 2,975.63 near the close of the trading day. The Toronto Stock Exchange was closed for the public holiday, so “a lot of it is about catch-up,” says Ron Coll, a mining analyst at Toronto-based Jennings Capital Inc. “Metal prices are lower and the U.S. dollar is stronger, and that’s not a great platform for these stocks.”

Jaguar Mining Inc [TSX: JAG], and Silver Wheaton Minerals Ltd [TSX: SLW]. were the hardest. Jaguar, the New Hampshire-based owner of Brazilian gold deposits, dropped 16% to C$8.37.  Silver Wheaton, based in Vancouver, also experienced its biggest one-day drop since its founding in 2004, falling 15% to C$11.

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