Silver Market Update (10-13-2014)

Silver’s fortunes seem to have revived dramatically last week, and while it’s too early to say the spot price has turned a corner it’s definitely looking a lot healthier than it was at the end of the previous period. The end of that week saw silver well below $17 and falling fast. When the markets closed on October 10 it was back up to $17.39 – a rise of 53 cents, or 3.1 percent. It’s still a long way from making up the 80 cents lost the week before but once more it’s heading in the right direction.

It seems like the underlying cause of this sudden recovery is the situation in the equities market. The Dow Jones fluctuated for the first three days of the week then started dropping steeply. The FTSE 100 showed a more modest, but steadier, decline. Asian stocks were also hard hit, with total losses for the week adding up to $1.54 TRILLION around the world. Oil prices also continued to fall as US shale oil production continues to ramp up – Brent crude is now selling for less than $85 per barrel, close to a four year low. Prices have started falling across every market sector, as we’ve seen over the last few weeks when silver kept going down right through stock market staggers, but that can’t continue forever. Sooner or later investors are going to move en masse towards something they think is fundamentally safe, and last week makes it look like they could be heading for precious metals. If so that’s good news for silver.

In the medium term there’s a good chance equities could stay weak. The main reason for last week’s fall seems to be a perception that many shares are seriously overvalued, with investors deciding to bail out before prices corrected (and triggering a correction in the process). One big winner was government bonds, with ten-year Treasuries hitting a 2014 high and Australian bonds also performing strongly.

What happens next for silver looks likely to depend on where the stock markets go, and right now it looks likely equities could continue to struggle through the end of the year. Good holiday retail figures could provide a boost, but consumer confidence isn’t high and that argues against the shopping season being anything special. Combine growing fears of recession in the Eurozone and Asia – the Fed has just downgraded its figures for both Germany and Japan, and France is in real trouble – and a sustained fall in share prices is a real possibility. If that’s the case it could be very good news for silver.

We’ve been wondering about a total collapse in confidence in silver as an investment, but last week seems to be telling us that hasn’t happened quite yet. If this rally manages to last another week or two confidence is going to start growing again, and we should see support start to build. That will hopefully prevent any more long slides like this one. Meanwhile, with the spot price heading up, it could be a great time to stock up on silver while it’s still cheap.