Silver Market Update (10-20-2014)

It’s been a fairly indecisive week for silver. The previous period’s healthy-looking recovery hasn’t held out as well as we’d hoped and the spot price, after fluctuating moderately, closed slightly down at $17.27 – a loss of 12 cents over the Friday before. It’s nowhere near some of the bad weeks we’ve seen over the past couple of months but it isn’t all it could have been either. Gold performed reasonably well last week and all the same factors were in play, so it’s hard to say why silver managed to lose ground again – although we have our suspicions.

The dominant theme in the financial markets last week was the instability of equities. The Dow Jones finished slightly up, but it wasn’t very spectacular and there were a couple of sharp dips along the way. That seems to have driven the increase in the gold price, helped along by the weakness of other commodities. We expected it to have the same effect on silver, but that never really showed up. Of course after the last two months a 12 cent loss counts as a good week, but even a modest rise would have been a lot more reassuring.

Overall markets look to be turning nervous at the moment. The overall fall in oil prices isn’t causing much concern because most analysts attribute it to the expansion of shale oil production, which has brought the USA much closer to energy self-sufficiency. However prices are also down for the highest quality crudes, Brent and West Texas Intermediate, which shouldn’t be affected by shale. In fact Brent has lost a quarter of its value recently. That’s more likely to be a sign of a lack of underlying confidence. This should be a positive indicator for silver, so it’s surprising that it’s staying low.

What seems most likely is that the accumulated effect of weeks of falling prices has dented investors’ faith in silver, so even now that the market should be nudging money in that direction they’re still wary of buying in only to see the price resume its slide. That’s understandable but it’s also a self-fulfilling prophecy – with only industrial demand to hold it up the silver price isn’t going to recover. Again equities are key here; it now looks as if the steady rise early in the year has ground to a halt at least for the moment, and the longer that lasts the more people will be looking for an alternative. Gold should be the metal of preference given current trends, but as the gold/silver ratio opens out it will look like less of a bargain and hopefully that will persuade more buyers to give silver a second look.

It does look like the slide is over for now and there’s a good chance silver will start to develop some support around the $17.25 mark. There isn’t any reason for it to fall much below that at present and we still think it’s seriously undervalued. It’s definitely not a time to be selling, and anyone who buys in at the current price isn’t taking much of a risk – it pretty much has to rise soon, possibly quite a lot.