Silver Market Update (12-21-2014)

After two good weeks in a row silver took another hit last week, but so far it hasn’t fallen back to where it was in early November. Heavy losses over the weekend were reinforced by another slide on Wednesday, taking the spot price all the way to $15.85, but a steady regain on Friday recovered some of that and the final trades went through at $16.06. That’s still a loss of almost a dollar on the week before, around a 6 percent fall over seven days, but it’s not all bad news. There looks to be firm support in place above $15.75, which is reassuring, and early indications are that prices held up better over the weekend.
Last week turned out to be a good one for the stock markets, with both the Dow Jones and FTSE 100 indexes rising strongly and gaining around 7-8 percent. A combination of cheap energy and the holiday season retail boom are probably driving this but, whatever the cause, buoyant stocks are almost always bad news for precious metals and silver wasn’t immune last week. However the continuing collapse of oil prices is probably helping to maintain the price of other commodities; while last week’s fall wasn’t as steep as some, both standard and Brent crude finished the week down another couple of dollars on the barrel. That’s good news for equities, which harms silver, but it also makes oil less attractive as an investment – which is good for silver.
Silver has been having a bad couple of years, with a 36 percent fall in 2013 to consider before the less than sparkling results from this year, and some analysts are concerned at the possible impact of a rate rise by the Fed. As well as opening up new opportunities in other sectors that will increase the financing costs for bullion buyers. More promising is the government’s interest in weakening the dollar. With silver prices pegged to a strong greenback the metal looks overpriced in many parts of the world and that’s having a chilling effect on demand, but if the dollar can be pushed down to the more realistic level exporters want silver will also benefit.
There are continuing worries about the global economy, fueled by slow Chinese growth and worries about Eurozone debt, but the figures are still looking healthy enough for now and that holds out the promise of healthier industrial demand next year. Bullion sales have actually stayed fairly solid, possibly fueled by investors snapping up bargain-priced stocks, so if industry increases its silver consumption prices should rise. There’s no sign of any major new supply that could counteract that, either.
Looking at the gold/silver ratio is also encouraging. Comparing past trends suggests that while metals are down in general silver has fallen a lot further than it should have done, and an upwards correction is likely. As confidence starts to return we should see the price float up to a more realistic level. Overall this might have been a bad year, but we think 2015 is looking a lot better. Merry Christmas!