Silver Market Update (12-28-2014)

Silver followed gold down last weekend to start the week 40 cents below its previous close of $16.06, but then steadily picked up again through the week. After a very small dip on Wednesday it recovered again on Friday, reaching $16.31 before settling back to close at $16.07. One cent doesn’t even register as an increase in percentage terms, so overall silver went nowhere – even if Monday’s opening price caused a fair bit of alarm among investors who thought the price had finally reversed its downward trend.
It seems likely that the main factor holding silver back last week was concern that Moscow was planning a major selloff of gold. The troubled Russian economy runs on oil but it’s backed by gold reserves equal to six months’ worth of global production, and dumping a substantial part of that could send precious metal prices through the floor. Silver isn’t affected as directly as the gold spot price but the implications were troubling for the whole sector. Luckily the ruble seems to have steadied, pushing up from its low at nearly 60 to the dollar and heading for 50. That won’t please the western governments who’re punishing Russia for invading Ukraine but it is good news for precious metal investors.
It doesn’t look as if the stock markets put much downward pressure on silver last week; both the Dow Jones and FTSE 100 rose steadily, but slowly. Meanwhile crude oil kept dropping with Brent now selling for less than $60 a barrel and standard crude under $53. There’s still no sign of oil prices stabilizing, so metals don’t have any real competition in the commodity market. The real rival just now is currency exchange, thanks to the continued strength of the dollar, but as always investor confidence is fickle and there doesn’t have to be any real reason for falling prices.
So overall it’s not been a great year for silver. From just over $19.50 at the start of 2014 it’s ending the year close to $4 lower, a fall of almost 20 percent. This year has seen downward pressure right across the precious metals sector but silver has been hit particularly hard, and we don’t see any real reason for that. In the long term the gold-silver ratio usually stays fairly constant but right now it’s diverged quite a lot, with gold almost unchanged from January. That indicates that silver is seriously underpriced and should be above the $19 mark right now.
Over the last couple of months we’ve wondered a few times if silver was suffering from a serious loss of confidence, and that still looks like as good an explanation as any. At this point that would actually be good news because confidence isn’t a hard fact – it can return as easily as it went away. Historical analysis tells us that the gold-silver ratio will reassert itself over time, and that will drag silver back up to where it should be. That means tempting gains for anyone who buys in while it’s still so undervalued.