Silver Market Update (6-27-2014)

Silver’s been having a fairly good month and this week has continued the trend, albeit not spectacularly. The spot price closed slightly up on last Saturday, rising from $20.90 per ounce to $20.96 after hitting a high of $21.28 on Friday. Like gold the market saw a sharp drop on Wednesday and Thursday but while gold didn’t come back all the way silver managed a much better rally. It didn’t match last week’s rise, probably because the fear of an earlier than expected interest rate hike hasn’t materialized so far, but overall it’s doing better than would be expected with the overall economic situation still looking relatively good.
Like gold, the silver price has been pulled in competing directions this week by a range of factors. The key point responsible for keeping gains modest is the relatively good health of the equity market. The recovery isn’t as concrete as most investors would like but there’s no sign of it faltering just yet; another set of positive unemployment figures and the Fed’s decision not to raise interest rates just yet are making investors less risk averse and reducing the attractiveness of traditional hedges like silver. The US Dollar index has been doing well recently too, reaching a high of $81.10, although that seems to be easing down towards the $80 mark now.

At the same time the global political situation is worrying. The conflict in Ukraine, and the steady ratcheting up of sanctions against oil-and gold-rich Russia, has caused several waves of alarm across global markets. The recent surge in violence has stoked up worries and given silver a modest boost. So far there’s no sign of Russia caving in to international demands and the likely result is a further tightening of trade ties.
The situation in Iraq is more recent but just as alarming. Any threat to Middle Eastern oil drives commodity prices up and precious metals usually track oil’s rise. The USA has moved quickly to shore up Baghdad’s demoralized army but the northern oilfields are still in danger. With the two largest oil-producing regions facing tension at the same time there’s enough upwards momentum to counteract the strength of equities, which is why we’ve seen silver manage to keep rising.
What we’re seeing right now is the end of a three-year downward trend for silver. At the start of June a lot of analysts were betting on that trend continuing, but they’ve been proven expensively wrong. If the recovery continues – and there are good reasons to think it will – this could be an excellent time to increase silver holdings before the price starts to take off. Although the equity market looks strong just now the latest growth figures have been revised sharply downwards and there are signs that credit is about to tighten. Those are very strong indicators that metal prices could be ready to climb and with silver still so cheap there’s little to lose by buying now.