Silver Market Update (11-10-2014)

Silver’s woes continued last week and the divergence between it and gold widened dramatically on the markets. While gold managed to gain a few dollars and start making up the damage from the week before silver took another significant hit; by the time the markets closed on Friday it was trading at just $15.83 per ounce, down another 34.5 cents on the previous period. That’s nowhere near as bad as the previous period – the loss was around 2 percent, against 6 percent for the week ending October 31 – but still far from the news we were hoping for.

It looks clear now that traders have fundamentally lost confidence in silver for the moment. The equities markets made some gains this week but their performance was far from spectacular, with the FTSE 100 actually falling back sharply on a couple of occasions and the Dow Jones doing marginally better. In that sort of market environment, with faith in the economic recovery far from rock solid, we would have expected precious metals to turn in a better performance – which gold managed. Silver should have risen along with gold but completely failed to do so. The link between the two has been a lot weaker than usual this year so this isn’t all that much of a surprise, but it does have implications. Among other things buyers who might have looked to safeguard their money in silver are likely to choose gold instead.

In the long term silver should be supported by industrial demand, which remains healthy. Increasing demand for solar panels is likely to ensure future price increases. In fact silver probably has more industrial, chemical and medical uses than any other precious metal, so while the current low prices are troublesome for investors they don’t reflect its inherent worth. Even if it’s suffering at the moment, over the long term it’s fundamentally sound – reserves are limited, and more uses are being discovered every year. Unfortunately the markets can be fickle and right now silver is out of favor.

What happens from here is hard to predict; some analysts were predicting a hard bottom at $16.00, but the spot price has blown right through that. Now the best guess is solid support at around $14.60, suggesting another three to four weeks of substantial falls before we see any signs of recovery. At the same time there are predictions of resistance just below $18.00 so a recovery may not be a dramatic one. Still, a rise back to $17.50 or more would let a lot of investors sell without taking too much harm, and for anyone with the courage to buy while it’s below $16 there could be significant gains to be made. The best advice right now is to hang on and see where the bottom is, then buy in and wait for a respectable rebound. That will happen sometime; the current low prices are an anomaly. Of course if you’re looking at silver as a physical hedge against economic collapse then the current prices are exactly what you’re after – buy!