Silver Market Update (10-26-2014)

For the second week in a row not much happened in the silver market. The spot price finished the period at $17.20, down from $17.27 the week before. However while this is definitely lethargic we’re still not seeing the huge week on week drops that had silver investors so alarmed through September, so while the metal isn’t exactly recovering yet the prospect of a complete collapse is being held off for the moment. Gold is also quite steady, so there’s potential for a strong recovery if conditions turn out the right way.

You don’t have to look far to find the reason for silver’s decline – the stock markets, which are going through a rocky patch thanks to recent economic jitters, performed fairly well through the week. Both the Dow Jones and FTSE managed modest gains, which look to have been enough to bring some less nervous money back into equities. Right now it looks as if investors are balanced quite finely between stocks and precious metals, and a slight rise in one can be enough to start a short move in that direction. This isn’t reassuring for the markets as a whole but it does mean audacious buyers have the chance to profit on short-term deals. For the more conservative investor looking for a safe bet, however, the situation is a lot less clear. Unless the balance tips in favor of either stocks or commodities it’s likely we’ll see an increase in demand for treasuries and other ultra-low-risk vehicles.

If the market does shift towards commodities precious metals are likely to have an edge, as oil prices remain depressed. Last week did see a very small rise in the price of Brent (but not standard) crude, which generated some excitement following the massive losses of the past few weeks. However US and Canadian shale and sand oil extraction is now high enough to have a long-term chilling effect on petroleum prices, and any attempt by the OPEC countries to force it higher is likely to rebound on them nastily. We don’t see oil going back above $100 per barrel for the immediate future.

So right now silver is facing an uncertain market as it waits for investors to decide which way to tilt. Some analysts are seeing resistance starting to develop at around $17.35 while others think they can see support above $17. The fact is it’s difficult to make forecasts when movements are as indecisive as they have been the past two weeks. Right now the price is stubbornly below the moving average, which suggests a bearish trend to many. The positive spin on that is that it could signal a possible correction to an undervalued metal (and we think silver is undervalued) but we don’t think confidence in silver has recovered quite that much yet. Right now it’s a time to buy cautiously, and be ready to cash in any small gains and move somewhere else if the price takes another dip. We do think silver is going to climb before too long, but there could be some ups and downs along the way.