Silver Market Update (5-31-2015)

It’s been another partly disappointing week for silver, with the price dropping rapidly on Tuesday after an initial rise the day before. However by the end of the day silver had steadied and on Wednesday it rose slightly. It then continued heading up slowly for the rest of the week, finally closing at $16.70. That adds up to a loss of 37.5 cents over the week, slightly less than the period before. With silver’s weak performance over the past year it’s always troubling to see a week on week drop of over 2 percent, but the way it stabilized is reassuring; there’s every chance it will pick up some more value this week.
Normally a fall in silver prices coincides with a rise in the stock market, but that wasn’t the case last week, at least as far as the US markets went. The Dow Jones index fell in parallel with silver, and also recovered slightly on Tuesday before falling by 150 points over the last three days. There was a different pattern in the UK, where the FTSE 100 climbed through to Thursday before dropping back – although it didn’t lose everything it had gained. The context of the US market’s slide was revised figures for first quarter economic performance. New data shows that the US economy shrank by 0.7 percent over the first three months of 2015, mostly because the remarkable strength of the dollar is hurting exports. Compared to the other major currencies the dollar has gained an average of 17 percent over the last year and that’s made US products much more expensive overseas, particularly in the large European market. With the Greek debt crisis still rolling on, and weak export figures in China, there’s no prospect of the dollar’s relative strength fading any time soon. That’s led many economists to downgrade predictions for growth in the second quarter.
Although the normal links between silver and equities have been shaky recently, many years of market data suggest they’ll re-establish themselves soon enough. That means a cooling stock market should drive investors towards commodities, including silver. There certainly isn’t much competition from oil right now, with prices just a few cents higher than the week before and forecasts suggesting crude will still be below $70 a barrel this time next year. That means the outlook for silver should be looking pretty good. However it’s been shaky for a long time now and that tends to make investors wary. However looking at recent activity there’s been a lot of futures trading going on – contracts equal to 141 million ounces were bought in the third week of May, a record-breaking week. It just isn’t translating into higher prices at the moment. However disappointing second quarter growth figures could change that quite quickly.
Overall silver is potentially in a good position. Some analysts are predicting it could drop as low as $16 by the middle of the year but there’s no obvious reason for that to happen. If anything it’s still undervalued where it is right now, and with the rest of the economy cooling slightly there’s every chance of the price breaking upwards in the near future.