Silver Market Update (2-14-2015)

After serious losses the previous period silver bounced back strongly last week, with the spot price creeping slowly upwards through Thursday then jumping a whole 47 cents on Friday to close at $17.34. Over all it gained 66 cents above its previous close, completely recovering the 54 cents it dropped the week before and starting to eat into the ground lost in late January. This is definitely good news, because we’ve been saying for a while that silver is seriously undervalued – especially after the recent price drop – and it’s encouraging to see the market correcting itself in the right direction.
One fact that’s even more encouraging is that silver’s recovery isn’t just a reaction to what’s happening in other market sectors. With the equities markets doing quite well last week silver should have fallen again, but it managed to resist that pressure. This suggests that what we’re seeing is a real correction. It also brings the gold-silver ratio closer to where it should be, after two weeks in which it had started to open out again. Hopefully this means confidence in silver is firming up.
If that turns out to be the case it’s coming at a good time. The Bank of Japan caused some flutters on Thursday when a report stating further economic stimulus would be counter-productive leaked out. That strengthened the Yen, as well as giving a boost to previous metals. The situation in Europe is also generating demand for safe haven investments and that effect could get a lot larger over the next few weeks. Greece seems determined to play hardball over its debt issues but their lenders in Frankfurt and Berlin don’t show any signs of backing down. Unless something gives the result is likely to be Greece running out of money when the next batch of loans doesn’t arrive at the end of this month; the country’s banking system will be an early casualty and that’s likely to increase demand for silver. If Greece is then forced out of the Euro the same will apply. Long-term a Greek exit would strengthen the Euro, but that will probably follow a lot of turmoil as markets look at the risk of other members following them out the door.
Silver still looks like staying volatile for the immediate future, so rising prices now don’t necessarily mean a steady recovery. There are almost certainly a few more dips in store but there’s no reason why an upwards trend shouldn’t develop. Right now it seems unlikely the price will drop back below $16, and while a few analysts were talking last week about the price being unable to break through a ceiling around $16.90 that’s now out of date. Overall we’re seeing a variety of indicators becoming more positive. In fact January saw the biggest monthly gains since last June, and that’s even with the downturn at the end of the month, so the metal seems to be fundamentally quite strong. If the economic recovery falters, as many are predicting, we could quite easily see silver above $20 an ounce by the middle of the year. With that in mind we think it’s a good time to build up stocks at the current low prices.