Silver Market Update (8-1-2015)

There was some reasonably good news for silver last week; overcoming worries about a further slide, the spot price actually managed to gain slightly. It certainly wasn’t a significant rise and progress was uneven, but things looked a lot better than they did the week before. Unsteady progress through most of the week suddenly turned into a rapid 40-cent rise on Friday afternoon, boosting the price close to $15 before it settled back again to finish the week at $14.79. That’s only five cents up on its previous close, but right now silver is looking so weak that any gain is good to see. The big question is whether it can hold or even increase its value this week, and right now that’s hard to say. Confidence in silver is not strong and it’s going to take a lot more than last week to restore it.

Meanwhile equities had a good week, which is probably why we didn’t see the spot price rise by more than it did. The Dow Jones and Britain’s FTSE 100 both ended the period significantly up, although the Dow fell back slightly on Friday. It’s uncertain how they’ll perform in the long term because strong currencies continue to cause difficulties for exporters; the Eurozone, the world’s largest market, continues to struggle and the Euro itself isn’t rising. That’s going to keep slowing down US exports for the immediate future, and in turn that will slow the Dow’s progress.

The big question is, will that be enough to restore the fortunes of silver? In the short to medium term, probably not. There isn’t any good reason for silver to be trading so low right now. Demand from every sector – industrial, jewelry and bullion – is healthy. Output is rising but very slowly, and if prices stay low it’s likely to start to fall as marginal mines become economical. All the conditions are there for it to be rising healthily; the problem is simply confidence. Without that the really big investors are going to stay away in favor of safer-looking options, and while silver could overcome that to rise anyway it wouldn’t be easy.

The problem with confidence is that it’s not tangible, so hard to pin down. Investors are steering clear of silver because it’s performing weakly and they don’t trust it to turn round; it won’t turn round as long as investors are steering clear of it. It’s going to take some sort of market shock to jolt silver out of this steady decline; a sudden shortage would kick-start a price rise, and a spike in gold could drag silver up with it – if the link between them is still strong enough. A sustained decline in equities would probably have the same effect. However right now it just doesn’t look like a good investment to many people. The good news is that lack of confidence won’t last forever – it never does – and when it passes the price will rise dramatically. That makes this an ideal time to stock up cheaply, if you’re looking at the long game. Prices could fall further but, even so, if they rise to $20 or above there are big gains for anyone who bought below $15.