Silver Market Update (7-6-2014)

Like gold, silver has seen a series of ups and downs this week only to close not far from where it started on Monday. The week’s high was $21.25, close to the best price last week, but it fell back slightly to land at $21.09 on Friday. That’s an increase of 13 cents over the period, a far from spectacular performance but not bad considering the overall market situation.

The main driver on commodity prices continues to be the international situation. Precious metals are a traditional hedge position to guard against falls in other investments and so far there’s no great urgency to move in that direction. Despite disappointing growth figures for the US economy in Q2, demand for equities remains relatively healthy. Oil is also an attractive investment right now. The situation in Iraq is continuing to deteriorate, with the ISIS insurgents trying to solidify their grip over much of the country and already in control of the northern oil fields. It’s also unlikely that western sanctions against Russia will be relaxed any time soon, and if president Putin sends troops to aid the separatists in the east of Ukraine they could even be tightened. This tension in two of the largest energy exporters has been reflected in oil prices, with the price of a barrel of crude rising $12 over the week to close at $104.08. It’s likely that’s led to many investors leaving precious metals and channeling their funds to oil to take advantage.

On the other hand although silver hasn’t gone anywhere over the last week it’s proved remarkably resilient in what should be an unfavorable market. The week opened with a small drop, but the price then rallied – much more strongly than gold’s performance the same day – and peaked on Wednesday before falling back to see out the week hovering just above $21. There’s been little real movement since about June 20, which suggests strong underlying demand in the face of rising oil prices that should have depressed metals a lot more than we’re seeing. If that trend continues then a sharp rise is likely when oil prices stabilize, which historically they always do.

Right now silver presents investors with some tricky choices. Predictions based on moving averages suggest it’s a good time to sell, but we’re not so sure. Looking at the long term silver is well down on its 2011 peak and with economic recovery still looking uncertain there’s no reason at all why it shouldn’t rise substantially. As long as the spot price stays reasonably stable, as it has since rising out of the trough in June, holding on to your stocks certainly won’t do any harm – and while selling will protect you from any more dips that’s likely to be a short term gain. In the medium to long term silver is likely to rise, with $25 per ounce looking like a real possibility. So is it worth buying? It could be. The current price still isn’t much above the two-year low, so it looks like a bargain.