Silver Market Update (7-14-2014)

Silver is slightly up on where it was last week, having tracked gold very closely throughout the period. From an opening price of $21.09 on Monday it dropped quickly to the week’s low of $20.97 then rallied and spent Tuesday and Wednesday climbing steadily. The high price was $21.46 on Thursday morning, before settling back to $21.41 by the time the markets closed. That’s a gain of close to 1.5 per cent over the week, not a bad result by any standard.

Overall the equity market remains quite healthy, thanks to last week’s better than expected June unemployment figures. That must be helping to keep demand for silver down slightly, as is the continued high price of oil. With tension and violence in two of the largest oil exporters – Iraq and Russia – jittery investors have pushed the price of a barrel above the psychologically important $100 mark. There are signs it may be stabilizing though; following sharp rises over the previous two weeks the OPEC price only moved a few cents, staying close to $108. If oil really does stop climbing we can expect to see larger rises in silver as investors cash in their oil and look for somewhere safer to park the money.

The US recovery looks like it might finally be moving up a gear but there are fresh concerns in Europe as Portugal’s second largest bank wobbles. Portugal isn’t one of the strongest economies in the EU and remains vulnerable to debt issues, so if Banco Espirito Santo fails it could drive southern European stocks down fast. That would increase silver’s attractiveness as a safe haven and give prices a nudge upwards.

Not all analysts are optimistic, however. While silver is still seen as a good long-term prospect there are observers who think it’s going to lose value in the short and medium term. $17.50 is being talked about, a big drop from today’s already low price. Why do these experts think it’s going to drop? It’s based on study of who’s been taking big positions on silver and how they’re doing it. There’s a lot of short selling by commercial investors, while Large Spec buyers are going long on silver – and they’re usually wrong. In other words the people who have a good track record for predicting the silver price think it’s going to head down in the near future while the ones who don’t get it right quite as much as betting on the price continuing to rise. This sort of buying behavior has been seen several times before and every time it heralded a falling price. It could be different this time of course, but there’s no real reason why it should be. At the same time there’s no real reason for the price to fall either and if the European equities market catches a cold we’d even expect to see silver rise. Right now it’s a difficult one to call, but with prices so low there’s no reason to stop buying silver.