Silver Market Update (1-30-2015)

After a couple of good weeks, silver slipped again last week. It was looking reasonably healthy through Wednesday, but Thursday saw the spot price drop below $16.80 for a while – That’s close to $1.50 down on where it closed the period before. There was a slight improvement on Friday, bringing it up to $17.225, but that still represents a loss of $1.07 over the week. It’s still safely above the lows of late 2014 but an abrupt drop like this is a definite warning sign.
What’s puzzling is that there’s no real reason for silver to have fallen so sharply. Gold also lost value but in a much more modest way – less than 1 percent, compared to the roughly 6 percent we’re seeing here. The main financial driver of the week was the decline in US equities, with the Dow Jones registering a 500-point drop and its year-long positive trend now seeming to have turned downwards. That should have helped silver stay strong, but yet again the link between stocks and metals seems to have been broken. The gold-silver ratio looked like it was moving into a more normal band ten days ago but now it’s opening up again.
It’s possible silver was facing some competition from the recovering oil prices – Brent crude is now back above $50 a barrel, closing at $52.99 on Friday, and West Texas is heading in the same direction. It’s anybody’s guess how far oil might rebound but $70 a barrel sometime in the first quarter is definitely possible, so the energy sector is going to look very attractive to a lot of investors. That doesn’t completely explain why silver took so much more of a hit than gold did but it’s likely there’s at least some connection.
The end of last year saw a definite crisis of confidence in silver, without any real reason behind it. Industrial demand remains strong, as does the market in silver coins, and there aren’t any major new sources to take into account. A new deposit was reported in Sonora, Mexico last week but so far there are just preliminary core results from there, and it won’t be producing anything in the immediate future. That makes it unlikely it’s had any short-ter impact on the price.
Overall there’s no clear reason why silver performed so badly last week. It’s not a disaster; over the past few months it’s had bigger falls than this and gained it all back within a week or two. It’s worth watching closely this week, though, especially how it performs relative to gold. If the gold-silver ratio is diverging again it might be an idea to invest in gold right now – it seems to be in better overall shape. If you’re holding silver there isn’t a clear sell signal though. If you bought at the very bottom of the market you can probably clear a profit selling at the current price, but if you’re looking at the metal as a medium or long term investment the best advice, barring a sustained collapse, is to hang on to it for now and wait for the price to rise again.