Silver Market Update (11-30-2014)

Silver’s much better performance over the last two weeks raised hopes that its long slide had ended and confidence was starting to return. Unfortunately that’s come to a crashing stop as the spot price followed gold down, culminating in a sharp fall on Friday that pushed back towards the previous lows. In fact Friday saw a full 60 cent collapse that brought the spot down to $15.40, before a modest recovery saw it close at $15.58. That’s 86.5 cents down on the previous period, or more than 5 percent, and while the price rose slowly through Friday afternoon any revived confidence has to be seriously dented now. At the moment it’s anyone’s guess what direction it will go this week.
Under normal market conditions silver falls when equities rise, but that didn’t happen this week. Despite buoyant Q3 US growth figures – the numbers were just revised up to a 3.9 percent increase, the best third quarter performance in over ten years – the Dow Jones gained only a tenth of a percent over the week and the FTSE 100 actually fell.
The best guess is that widespread worries about the global economy are causing some market jitters at the moment. The Eurozone continues to suffer from weak growth, which has even spread to its German powerhouse, and there’s real concern that weak inflation is harming the recovery. Last week the European Central Bank discussed quantitative easing and now it’s trying to restructure spending in France, Italy and Belgium – a delicate balancing act given the risk of a new debt crisis in those economies. China is also working to reverse a fall in growth and overall that’s creating a climate of worry. Strong US figures aren’t enough to offset that, and this could explain why last week was so sluggish.
Last week we saw hints of a recovery in crude oil prices, which can often signal a shift away from precious metals, but that’s ended too. In fact both standard and Brent crude fell by around 11 percent to break through their four-year lows. That’s despite continued trouble in Russia and the Middle East, signaling the massive impact increased US production is having. The recent announcement by OPEC that they won’t be cutting production to support prices has just accelerated the fall.
Whatever the cause, last week’s reversal is a real blow for silver investors. It’s crucial that the metal regains the confidence of the market and that isn’t going to happen as long as it keeps slumping back to these sub-$16 prices. After the latest fall we definitely wouldn’t advise selling, although if you’re taking a long view it’s yet another chance to stock up at a bargain price. For now we’d advise hanging on and waiting to see what happens through the first half of December. The numbers for Black Friday haven’t been fully crunched yet but if the holiday retail season looks like turning out well that could depress equities and trigger a bounce in the commodities sector. We’ll just have to wait and see.