Silver Market Update (7-21-2014)

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A lot of market observers have been building up a sense of quiet optimism about silver and gold prices, based on how well they’ve managed to stay afloat in a market that should have been acting to nudge them steadily down. Unfortunately that optimism looks like it might have to be put on hold for a while. Closely tracking gold, silver prices started to drop as soon as Europe started trading on Monday morning, going from last week’s close at $21.41 per ounce to a weekly low of $20.73 on Wednesday. Things turned around on Thursday, rebounding back to $21.09, but it couldn’t sustain the rise and ended the week at $20.84.

So why did a price that’s managed to creep upwards in the face of an economic recovery suddenly have a hiccup? Most likely it’s simply down to the fact the recovery has managed to keep going. It’s possible many investors were wary enough to keep some of their assets in a safe harbor like precious metals just in case the economy stalled again, but with unemployment figures improving month on month and stock values on a steady upward trend the need for a cautious approach looks to be receding. The US dollar is also rallying and that’s historically a bad sign for the silver price.

Of course there’s more going on than stock values, but even in the commodity sector things are pointing away from metals. With the crisis in Iraq dragging on oil is still looking like a good choice for short-term gains. The situation between Russia and Ukraine has been dragging on too, and this week it took a dramatic turn for the worse with the shooting down of Malaysia Airlines Flight 17. Initial reports of the disaster contributed to silver’s price surge on Thursday, as bad news tends to do, but as more details emerged the spot price sank slightly again and money moved to oil. Now that it seems clear a Russian-supplied missile brought down the Boeing there’s a likelihood of even more severe sanctions on Russia, and as the country is the world’s largest energy exporter that’s definitely going to affect oil prices unless OPEC raise quotas to compensate. As they’ll profit from a rising price that’s far from guaranteed.

For investors the big question is what to do now. Now that silver’s gradual rise has stalled it’s open to doubt if it can regain any momentum, so is there going to be a consolidation period or a sharp fall? There’s no shortage of analysts predicting a drop to $19.80 or even lower over the next few weeks, and the signals are saying sell if you’re holding silver as a short term investment. On the other hand if you have longer term plans it’s definitely worth hanging on just a bit longer to see what happens. The global economy isn’t out of the woods yet and at some point silver is going to start rising again. If you’re willing to watch it take a temporary dip it’s still going to pay off in the long run.