The silver market didn’t really go anywhere last week despite some minor fluctuations; early losses were balanced by a slow but steady climb on Thursday and a Friday morning jump. From a Wednesday low of $14.50 the spot price recovered to $14.81 by the time markets closed for the week, a gain of two cents over the previous close. That’s well under one percent, so doesn’t really say a lot about the future direction of the market. On one hand it’s worrying that, considering the week’s events in other markets, silver barely rose at all; on the other, there was no large movement away from the metal that would signal a continued erosion of confidence.
The biggest driver of commodity prices is usually the equities market; when shares rise, commodities – including silver – tend to fall. Last week the Dow Jones dropped steadily through the period, posting an overall loss of more than 200 points. The Chinese markets also flagged badly, and China is a country that’s traditionally been quick to buy bullion when equities lose value. The combination of those two factors should have been enough to give silver a significant boost. Add in the fact that the Eurozone market is still looking depressed, with the single currency obstinately stuck at around $1.09 and worries about Greece rumbling on. It’s true that some stock markets showed gains – London’s FTSE 100 climbed through the week – but that shouldn’t have been enough to keep silver down.
At this point it’s worth looking outside the box and asking if silver really is down. Its dollar price has been static or falling for a while, but that’s in the context of a strong greenback and dollar-denominated market. The perspective elsewhere might not be the same. For example Indian investors saw last week as good for silver, with a rise of close to 1 percent on Friday. The dollar’s strength could be masking a fairly significant rise in the spot price. Obviously that doesn’t help US investors much, but it could be that at a global level demand for – and confidence in – silver is a lot healthier than a simple look at the spot price suggests.
Dollar investors don’t seem to have a lot of confidence in silver just now but fundamentally it remains a sound investment. There’s a steady industrial demand that shows no sign of shrinking anytime soon, and new uses are constantly emerging – the fast-growing electronic cigarette market increasingly uses silver-plated contacts, for example. Meanwhile production is fairly stable, with no major new sources on the horizon and some existing ones looking quite marginal at current prices. Any further price falls could see some mines cease production, without doing anything to cut industrial demand.
There’s increasing speculation about interest rate rises, which have the potential to depress silver even more, but in the longer term the global economic recovery is far from secure and few observers are confident enough to rule out a slide back into partial recession. That makes silver worth hanging on to, and the price right now makes it easy to build up substantial stocks cheaply.
There was some reasonably good news for silver last week; overcoming worries about a further slide, the spot price actually managed to gain slightly. It certainly wasn’t a significant rise and progress was uneven, but things looked a lot better than they did the week before. Unsteady progress through most of the week suddenly turned into a rapid 40-cent rise on Friday afternoon, boosting the price close to $15 before it settled back again to finish the week at $14.79. That’s only five cents up on its previous close, but right now silver is looking so weak that any gain is good to see. The big question is whether it can hold or even increase its value this week, and right now that’s hard to say. Confidence in silver is not strong and it’s going to take a lot more than last week to restore it.
Meanwhile equities had a good week, which is probably why we didn’t see the spot price rise by more than it did. The Dow Jones and Britain’s FTSE 100 both ended the period significantly up, although the Dow fell back slightly on Friday. It’s uncertain how they’ll perform in the long term because strong currencies continue to cause difficulties for exporters; the Eurozone, the world’s largest market, continues to struggle and the Euro itself isn’t rising. That’s going to keep slowing down US exports for the immediate future, and in turn that will slow the Dow’s progress.
The big question is, will that be enough to restore the fortunes of silver? In the short to medium term, probably not. There isn’t any good reason for silver to be trading so low right now. Demand from every sector – industrial, jewelry and bullion – is healthy. Output is rising but very slowly, and if prices stay low it’s likely to start to fall as marginal mines become economical. All the conditions are there for it to be rising healthily; the problem is simply confidence. Without that the really big investors are going to stay away in favor of safer-looking options, and while silver could overcome that to rise anyway it wouldn’t be easy.
The problem with confidence is that it’s not tangible, so hard to pin down. Investors are steering clear of silver because it’s performing weakly and they don’t trust it to turn round; it won’t turn round as long as investors are steering clear of it. It’s going to take some sort of market shock to jolt silver out of this steady decline; a sudden shortage would kick-start a price rise, and a spike in gold could drag silver up with it – if the link between them is still strong enough. A sustained decline in equities would probably have the same effect. However right now it just doesn’t look like a good investment to many people. The good news is that lack of confidence won’t last forever – it never does – and when it passes the price will rise dramatically. That makes this an ideal time to stock up cheaply, if you’re looking at the long game. Prices could fall further but, even so, if they rise to $20 or above there are big gains for anyone who bought below $15.
Most attention was focused on gold last week, as the spot price took a real hammering from the markets, so the fortunes of silver got a lot less coverage in the media. That’s understandable because movements there were a lot less startling. Silver climbed Monday, reaching $14.99, then fell back as the week went on to a low of $14.62 on Wednesday. It started climbing towards the end of the week but had a volatile day Friday, reaching $14.35 at one point before bouncing back to end the period at $14.74. That’s just ten cents down on its previous close, and while it’s too much to say this is a good sign in the current market it’s a lot better than it could have been.
We suspect that a bad week on the equities markets has given silver some much-needed support here. Gold’s sharp decline had other reasons but these were specific to that sector and silver looks to have escaped their impact. Both the Dow Jones and FTSE 100 fell steadily through the whole period and that usually nudges investors towards commodities. With oil prices falling again – WTI crude is down to just $48.14, with Brent closing the gap at $54.62 – that leaves precious metals looking tempting, but facing some stiff competition from government securities and the currency markets. With Greece looking like it won’t be ejected from the Euro right now worries about contagion ripping the single currency apart have faded, and that makes high—yield bonds from Italy, Spain and Portugal an attractive investment. With silver not offering much in the way of returns right now it’s hard to match that, but the situation could change rapidly if Greece flares up again – and that’s likely. The current situation is only a time-out, with a more solid deal required by the end of August. Any renewed doubts about the integrity of the Eurozone could spark a move back to commodities and that should benefit silver.
There seems to be a clash of influences here. The US economy is generally going well, which is bad for silver, but the strong dollar is still causing trouble for exporters. We’re seeing a serious slowdown in the Chinese economy and the Eurozone is still stagnating, both of which should boost silver’s value as a safe haven, but at the same time confidence is still weak and there’s no sign of a change of course on the horizon. It’s likely that FOREX trading is sucking a lot of investment away from silver; the Euro looked to be recovering after the latest Greek deal was struck but it’s been an unsteady rise and a Euro is still worth around $1.10. There’s a lot of potential for gains as the rate fluctuates and, with any profit from silver a mid-to long-term prospect, the attraction is obvious.
In the current conditions selling silver isn’t likely to bring much of a return unless you’ve been holding it for a long time, so it’s probably best to hang on to your holdings until the price recovers. When it does start to rise sustainably that’s the time to buy in at a bargain price.