Silver Market Update (11-3-2014)

After silver’s mid-October rally investors have been watching closely to see if confidence in the metal had started to rebuild. Sadly it looks, after last week’s dismal market performance, that the answer is no. The period saw a continuous slide that took the spot price from $17.20 on Monday all the way to $16.175. A loss of more than a dollar in a single week’s trading equates to a 6 percent fall, and it’s also down below the previous five year low. If confidence was coming back it’s been severely shaken now, and that’s worrying for anyone who has a large position in silver.

As with gold, the most likely reason for silver’s poor performance is that it was responding to moves in the equities markets. Strong growth in stocks through most of the year to date has looked a lot less reliable over the last few weeks, and that was probably the main driver behind the improvement in metals. In fact the rise in silver that had us feeling a bit more optimistic followed a major stagger in share prices. However equities seem to be looking healthier, at least for the moment, and the renewed interest in safe havens like precious metals appears to have ebbed in turn. The Dow Jones finished last week up more than 500 points, and the FTSE 100 and other European indexes did just as well.

Plenty of analysts have doubts about the foundations under this renewed growth in stocks, and there are good reasons for that. The major European economies, with the exception of the UK; are at risk of slipping back into recession – France is already there in all but name – and trouble in such a large market could have a serious impact on US businesses. So far we’ve seen consistently good employment figures all year, but to balance that first quarter growth figures were abysmal and the full effects of that haven’t shaken out yet. Another dip in growth could send the US markets into a spin, and with European growth already stagnating that’s going to create a demand for alternative investments.

Of course treasuries are always a safe bet, but for anyone looking for better prospects commodities are the first place to look when equities go down and silver should be a good choice. That’s especially true when oil is weak, and in many ways it’s looking like a less solid investment than it’s ever been. Prices on high quality markers like Brent and West Texas Intermediate look to be stabilizing but the baseline crude oil price is still falling. We don’t see that changing any time soon despite the ongoing trouble in the Middle East and Ukraine, because the USA and other non-OPEC producers continue to ramp up fracking and shale oil production. Oil could be a safe haven, but not a very profitable one.

So in the mid to long term we think the outlook for silver remains hopeful, but right now it’s weak. Unless you’re holding stocks bought at a lower price it’s not the time to sell, but there aren’t any buy signals either. Just be ready to build up stocks next time it looks like turning the corner.