Silver Market Update (7-18-2015)

Silver took a heavy hit on the markets last week, diverging significantly from gold and falling to a new five-year low. The spot price slid all week, with no hint of a recovery or hesitation at any point, and by the time the last trades went through on Friday an ounce of the metal was selling for only $14.84. That’s down 78 cents on the previous Friday, a fall of more than five percent. We’ve seen bigger drops in recent months but this is still significant, and it’s also close to double what gold fell by. After a lot of investor concern earlier in the year about the widening gold-silver ratio things seemed to have stabilized, but now it’s opening up again at an alarming rate. That hints at a renewed fading of confidence in silver as an investment, despite continued healthy industrial demand.

We expected to see some losses for silver because equities had a reasonably good week. Both the Dow Jones and FTSE 100 managed to climb, turning in gains that were unspectacular but still respectable. It was slightly surprising that US equities outperformed British ones because the strong dollar, which has been making life difficult for American exporters, just got even stronger. Frenzied negotiation in the Eurozone looks to have kept Greece in the single currency for now and, as predicted, the FOREX markets are punishing the Euro for that. Most economists accept that the Euro will be stronger if Greece’s chronic debt problems are removed from the equation, so the motivation to keep the country in the bloc is clearly based on politics not economics. That makes investors nervous, so we can expect to see the Euro remain weak for the foreseeable future. In turn that’s likely to push US equities, at least in the manufacturing sectors, down. Other factors can override that of course, but the pressure will be there. In the medium term that should be good for silver, especially if investors who’re holding Euros decide to look for a safer option. On the other hand right now currency exchange is looking like an attractive option, with money to be made buying into the strengthening dollar. The greenback has gained almost 3 percent against the Euro in the past week, and that’s a good rate of return by any measure.

Meanwhile the oil market continues to fade. The original aim of driving crude prices down was to starve the Russian government of funds as punishment for its intervention in Ukraine, but the process seems to have taken on a life of its own. Thanks to low extraction costs the Gulf states can make a profit at below $30 a barrel and they’re using that ability to squeeze competitors, especially US shale oil, out of the market. WTI is now less than a dollar above the $50 mark and Brent looks to be following it down, with Friday’s price just $57.72.

Overall it’s hard to recommend buying silver right now. Confidence looks to be ebbing again and unless that changes further price erosion, and divergence from gold, is likely. Be ready to buy if the price turns round, but in the short term gold is probably a better bet.

Silver Market Update (7-11-2015)

For the second week in a row silver slid gently, losing about half a percent of its value. Clearly that’s a disappointment for investors but in the current market climate we don’t think it’s too severe. All sectors were seriously affected last week and silver actually did better than a lot of people expected it to. We saw a very sharp fall at the beginning of the week as most markets plunged, followed by a steady regain from Wednesday. The spot price didn’t make it all the way back up but it did close at $15.62, just 6.5 cents down from the Friday before. In the circumstances that’s pretty respectable.

At the same time we saw the Dow Jones index climb slightly on Monday, then fall away before recovering in very much the same way as silver did. The Dow did end the week slightly up, mostly fueled by rumors of a deal to end the Greek debt crisis. Britain’s FTSE 100 meanwhile fell over the weekend then spent the week rising, again closing a touch above where it started. The overall picture is of markets in every sector dropping off early then managing to gain back ground as the period went on. The central fact behind most of this was, as usual, Greece. We’ve predicted an end to that crisis so often we’re very wary about doing it again but it does look like the last act is opening. Athens is almost completely out of cash and has no real choices left, so we should know this week whether they’ll stay in the Euro or not. However it’s no longer clear what that will mean. It now looks like a deal could strengthen the Euro, which would be good news for US exporters – and share prices – but bad news for silver.

At the same time the Chinese markets are also heading strongly down, and it looks like the Asian shares bubble might be bursting, so there’s a chance of increased demand for bullion from that quarter. That would put an upward pressure on silver that might compensate for a lot of the falling US demand. The general unreliability of European bonds could also fuel interest in a safe haven.
Oil definitely isn’t offering much competition to silver right now. Prices slipped noticeably last week, with WTI closing at $52.74 a barrel and Brent dropping back below the $60 mark for the first time in a while to finish at $58.73. As always this is mixed news for equities; most businesses will see costs fall and profits rise, but it tightens the screw on the US oil industry as the price falls even closer to – or below – production costs.
It would have been nice to see silver climbing last week, but it probably wasn’t too likely given the nervousness we saw in other markets – especially equities and foreign exchange. Whatever happens with Greece it’s likely many investors will be drawn to the currency markets for a while, but when that starts to settle there’s a lot of potential for silver to start picking up value again.

Silver Market Update (7-4-2015)

Silver slid again last week, although not by as much as the week before. After an early slide, then an erratic recovery on Thursday, it finished the period at $15.685. That’s a drop of 6 cents over the week, well under half a percent, so while it’s slightly disappointing that the spot price didn’t recover at all it’s not a significant downward movement. Considering that most of the other global markets dropped, some of them sharply, silver didn’t really do too badly in comparison.

The most active sector last week was the equities market. At a global level we saw a general fall, with the major European indexes all down and China’s Shanghai Composite marking its biggest three-week fall in over 20 years – it’s down 29 percent since mid-June. This should all be excellent news for silver, which along with gold is a traditional safe haven from falling share values, but so far it’s not worked out that way. One possible reason is the contrasting situation in the USA, where the Dow Jones managed to close the week 134 points up. That reflects the pain US exporters have been suffering from the strong dollar, which has cost them a lot of sales in the important Eurozone market. There’s a good chance the Euro will pick up value sharply this week on a Greek exit, and if it does that will be a major boost to the US economy at the expense of European manufacturers (which is probably why their exchanges have been seeing losses). That outcome is far from certain though and the result is a lot of market nervousness. China’s stock weakness is likely down to a combination of that nervousness and some recent restrictions on margin calls, all piled on top of a recent slowdown in exports. Chinese sales to the USA are still healthy because the high dollar makes for tempting prices, but they’ve lost a lot of business in Europe thanks to the single currency’s weakness.

Uncertainty does have potential benefits for silver. Many analysts expect the Euro to be strengthened by a Greek exit, because Athens has been overspending wildly for years, but there’s always the possibility of contagion to the other Mediterranean economies. If the Euro immediately runs into another crisis commodities are going to look very tempting and silver could be well placed to gain from that. There’s a good chance that by the end of this week we’ll have an idea which way it’s going to swing.
Meanwhile oil prices have been weakening again, with a barrel of WTI down to $56.93 and Brent at $62.07. That’s a loss of just over a dollar for the North Sea crude but close to three for WTI, and while prices aren’t likely to hit the lows of a few months ago this is certainly a hint that they won’t be rising soon.

So overall it wasn’t a great week for silver, but not really a bad one either. It’s managed to pretty much hold its value in a very rough market, and there’s some potential for a rise in the near future.