Silver Market Update (8-12-2014)

Silver has been tracking gold closely for a while now, but towards the end of last week we saw that start to break down as silver kept falling while gold made a modest recovery. This week sealed that deal; silver started dropping as soon as the markets opened on Monday and continued down to the week’s low of just $19.79 on Tuesday morning; it regained a little to a high of $19.98 on Wednesday then slipped back steadily to close at $19.90. That’s 43 cents down on last week; the third week-on-week fall in a row, and it seems to be picking up speed. Gold is right back to where it was and could well be set to climb higher; another week like this will see silver approaching the downtrend line from its high a year ago. There’s a chance it could stick there at around $19.60, but if not it could easily end back below $19 as confidence fades.

With gold rising and equities going nowhere obvious after last week’s 500-point fall in the Dow Jones we would have expected silver to show at least a modest rise this week. It’s just one more surprise of this confusing market phase – precious metals managed to climb together with the stock market then had a hiccup when equities dropped, which is pretty much the opposite of how it normally works. Now gold looks like it might be reasserting the traditional pattern while silver has broken free and continues down. Overall the signs are good for a rally. Despite continuing trouble in Iraq and Ukraine the oil price is staying below $100 a barrel, and it’s likely the prospect of higher energy prices was acting as a brake on metals over the last few months. At the same time the drop in the Dow has generated enough unease among investors to turn thoughts back to traditional refuges like gold and silver.

Some analysts are betting on silver’s continued fall being short term and expect it to head back up soon; if it doesn’t break through $19.60 that looks like being a good bet. There are a few signs of optimism with the Dow Jones silver index continuing to rise this week in the face of the falling spot price (their gold index actually dropped), so the metal hasn’t been abandoned yet.

That brings us to what to do if you’re holding silver yourself. Right now we’d say hold on, but keep a wary eye on where the price is going. If it reaches $19.60 and keeps going down that would be a strong sell indicator; if it falls past $18.60 start buying back. However with the state of the stock market and other commodities right now there’s a good chance the price is just paying a final visit to last year’s floor before turning around and heading back up. With that in mind it’s too early to start getting out. There’s no reason we can see for silver not to lock back in with gold, and that means it could be going places over the next few weeks.