Silver Market Update (12-14-2014)

The silver price has been highly volatile this year but the recent trend has been pretty consistently down. There have been reverses but in general it’s been a dismal few months, and many analysts have come to the conclusion that investors have lost confidence in the metal for the short to medium term. Last week looked a lot better though, and while it’s still too early to say a corner has been turned it’s definitely looking a lot more buoyant right now. When markets opened on Monday the spot price took off strongly, and while a slow decline set in on Wednesday the final price for the week was $17.03. That’s 75 cents up on the previous Friday, the second week in a row it’s gained close to 5 percent.
It’s likely that silver got an early boost thanks to falling equity values, with the Dow Jones and FTSE 100 both dropping sharply as soon as trading started Monday. The dismal state of the oil market probably helped too. Despite continuing issues in the Middle East and Russia OPEC is still keeping production quotas high and that, combined with the surge in US production, is holding crude prices in their nosedive. Brent crude is now just below $62 a barrel, while standard is through $58 and picking up speed. That’s seriously reducing oil’s attractiveness for investors and silver is naturally going to pick up some of the slack.
There looks to be something more at work though, because silver’s slight fall at the end of the week wasn’t linked to a recovery in equities – the stock market carried right on down. If silver has decoupled from share prices for the moment that could be a sign that, even if confidence isn’t returning yet, the market is recognizing that it’s seriously underpriced. There’s now a good chance that some support will start to appear around the $16.75 mark, so hopefully we won’t see it fall back to where it’s been recently. There really is no reason for it to have fallen so far, especially with industrial demand remaining healthy, so an upwards correction is long overdue.
So why did the spot price fall in the second half of the week? One possibility is that the rise in the dollar, helped along by positive US growth and employment figures, prompted more interest in currencies. It would have been more reassuring to see silver end the week on an upward swing but it’s not a real worry yet. Hopefully this week will see a further rise, which should start to bring money back into the market and push the price back towards a sensible level.
Longer term there’s even more reason for optimism. Demand for silver hasn’t kept up with supply and the year’s total surplus is around 3 million ounces – that’s probably played its part in keeping prices down. Next year the situation’s likely to be different with a shortfall of 11 million ounces projected. As that starts to make itself felt there will be a strong upward pressure, so this is an ideal time to increase stocks while it’s still affordable.