Silver Market Update (1-2-2015)

Silver investors were faced with another inconclusive week over New Year, as prices fluctuated without very much real change either way. The enforced trading break on Thursday didn’t help in building up any clear picture either. From a close of $16.07 the previous period the spot price fell to $15.69 over the last trades of the year, then edged up slightly on Friday to finish the week at $15.79. A drop of 38 cents over the week is disappointing with the price so low already but it certainly wasn’t a disaster like some weeks over the past quarter.
It was a week of falling prices all round, with the main share indexes also falling up to the end of December then recovering slightly on Friday. Crude oil also continued to slide, with the benchmark price now below $53 a barrel and Brent not far behind at less than $57. A barrel is now selling for less than half what it cost at last summer’s peak and with OPEC stubbornly holding production at pre-slump levels we can expect to see it go down further unless the USA cuts domestic production. That will be strongly resisted, because energy sufficiency is too tantalizingly close to be abandoned at the whim of the Gulf sheikhs, but the price is already close to the break-even point for North American shale extraction and unless it stabilizes soon a cut is almost inevitable. That will have knock-on effects across related industries and is likely to depress shares, which right now are benefiting from cheap energy. If that happens silver is likely to get a modest boost.
Right now it’s hard to tell where silver is going to go in 2015. Some analysts are predicting price meltdowns right across the commodity sector, with $40 oil – the Saudis say they’ll keep pumping a slow as $20 – and 1,000 gold. Silver, they say, could drop to $10. We don’t think so. Demand is actually holding up pretty well and there’s little chance of any significant new supplies coming online, plus the gold-silver ratio has diverged well outside its normal range. The smart guess is that silver is seriously undervalued in real terms and will correct upwards sometime in the first half of the year. The strong dollar isn’t going to last forever and while a fall in its value will boost US exports it will also bring some money from FOREX back to commodities, which should see silver benefit slightly.
One big point against the claim that silver’s going to fall again is that most experts in the mining industry don’t see it happening, with the largest group thinking it’s going to rise. Balance that against the futures market, which remains weak, and the overall message is that there are no guarantees. It would be frustrating if last year’s volatility continued, making the metal an unattractive option for anyone except short-term speculators and those looking for a physical defense against currency collapse, so let’s hope we see some clear trends starting to emerge over the next few weeks. The best bet is an upswing after the 2014 Q4 payroll and growth figures are released.