Silver Market Update (7-28-2014)

The silver spot price has been tracking gold very closely for the past few weeks, but this week it started to drift away slightly. The end results weren’t all that different and, like gold, silver had a mixed week, but look at the two graphs and they’re not as similar as we’ve got used to seeing. Again like gold silver climbed on Monday when the markets opened, but instead of falling back right away it managed to hold its value until a sudden fall on Thursday to the week’s low at $20.38 per ounce. A rally on Friday brought it back up to close at $20.59, down 25 cents from last week’s closing price of $20.84. That’s a small but significant drop, whereas gold managed to close within a fraction of a percent of where it finished up seven days ago.

Silver is usually seen as a safe haven for funds that’s similar to gold but more affordable, and in general the economic climate right now doesn’t seem to need a shelter. After disappointing first quarter growth the US economy is moving in the right direction, with solid monthly employment figures since the start of the year and a rising Dow Jones index, plus a long-awaited rise in the dollar’s value against other major currencies. At the same time the Federal Reserve looks set to continue its relaxed policy on interest rates, which adds another downward pressure on precious metals.

In terms of competing commodities oil has to look like a good bet just now, with ongoing problems in the Ukraine and Iraq that could force the price well above its current level. The threat of serious US and EU sanctions against Russia is definitely something to watch; sanctions against the world’s largest energy exporter are unlikely to pass unnoticed by the market, and if oil prices start to climb short-term investors are likely to sell off silver. If you’re looking at silver as a long-term strategy we’d say hold on to it and wait out this phase of the market; otherwise it could be a good time to sell while the price is still relatively close to its recent high. It’s almost certain there will be at least a short spike downward in both metals and silver could stay down for longer. If the price drops below $19.80, on the other hand, that would be a good time to take advantage and buy in. It’s unlikely to stay that low for long and a bold purchase at that price could pay off in a fairly short timescale.

By most normal standards this shouldn’t be a good time to be investing in silver, but there are reasons to give it a chance. The economic recovery is going well enough for now but it’s not as robust as it could be and there are still some jitters in stock prices. The negative growth figures for quarter 1 are a concern and quarter 2’s numbers aren’t likely to do more than make up what was lost. Debt in southern Europe remains a worry as well. That’s all helping to support silver, so it could still be worth hanging on for the moment.