Silver Market Update (2-6-2015)

After falling towards the end of January the silver spot price seemed to be holding up quite well last week, staying above the $17.20 mark and even pushing past $17.60 on Wednesday, but on Friday it suddenly nosedived to a closing price of $16.685. At 54 cents the drop was barely half that of the previous week but it’s worrying that silver, already undervalued, is still vulnerable to these unpredictable losses.
Friday was a bad day overall, with gold also losing heavily and the otherwise buoyant Dow Jones showing a small but sharp downturn. The only exception was oil, where prices continued their strengthening recovery – Brent crude is now close to $58 a barrel, and West Texas is above $50 for the first time in weeks. Given silver’s reasonable performance up to Thursday it’s possible this was just a short-lived glitch and the price will rise again this week, but it’s been so volatile for months now that few analysts are willing to tie themselves to a firm prediction either way.
Looking at the situation, though, there is some potential good news for silver. The Euro is weak just now and that’s likely to nudge many investors towards silver. It’s true that a weak Euro means a strong dollar, and that tends to depress the dollar-denominated spot price, but the dollar can’t stay strong for ever and when it weakens in turn silver will bob up. The economy also sends a few signals. While the latest nonfarm payroll figures were a lot better than anyone expected, showing 275,000 new jobs created in January, there are hints of instability there. A lot of those new jobs are zero-hours or part time, and wage figures show a slight fall compared to December’s. The equities market performed well last week but the Dow Jones still hasn’t rediscovered the long upward trend that faltered recently, and it’s as likely to dip as to rise further. Again that would be good for silver.
A closer look at the silver market suggests there’s a lot of optimism under the surface. Silver futures traders in particular seem confident; right now they’re going long on 329 million ounces of the metal, against only 68.4 million ounces short. That’s the heaviest weighting towards long we’ve seen since last July. Of course that can backfire – in 2014 speculators then decided silver was oversold, and the reaction knocked more than a quarter off the stock price over the next four months. The same could happen again and because the market’s so unstable some observers think the price could go as low as $12.50. We tend to disagree. It certainly isn’t impossible but there just doesn’t seem to be any reason for that to happen. Industrial demand for silver is healthy and thanks to all the economic factors we’ve looked at investors should buy enough to keep the price off the floor. Right now we’d say you should look at any price dips as an opportunity to build up your stocks, because silver’s likely to be worth a good bit more in the medium to long term.