Silver Market Update (8-19-2014)

Silver has continued to fall this week after a brief rally when the markets opened on Monday, hitting a high of $20.06 before starting a slide that picked up speed on Thursday to finish at $19.55, down 35 cents on last week’s close. That’s four weeks in a row that silver has lost value, opening up more of a gap between its performance and gold’s. However we think there’s still potential for improvement in the near future.

A fallback in silver prices could have been expected this week as the stock market looked set to recover a good part of its recent losses, although silver seems to have decoupled itself from that at the moment anyway – it continued going down two weeks ago when the Dow Jones Industrial Average lost its entire 2014 gain in a single week. On the other hand stock prices dipped on Friday at the news that Ukraine claims to have shelled a Russian military convoy. If these reports are true there’s a good chance Russia and Ukraine could be openly at war by next week and that’s likely to cause havoc for equities. Silver responded to the Dow’s dip by rising a fraction before falling back again, and if the markets fall off there’s a good chance it could bring about a real rally in the silver spot price. We really can’t see any reason why it wouldn’t; silver can drop a little bit more before confidence is seriously shaken and a sell-off is triggered, so it’s still looking like a sound medium or long term investment.

Even without a war it’s difficult to call what the stock market is going to do. The economic recovery looked pretty solid a month ago but there are some doubts creeping in, along with the risk of a new debt crisis spreading for Portugal into the rest of the EU and beyond. The latest European growth figures are alarming, with the two largest Eurozone economies – Germany and France – actually contracting slightly. If German exports are starting to slow that’s a signal that demand is weak in other markets, so we could be looking at a period of consolidation and a widespread drop in equities. If that happens demand for safe haven commodities is likely to increase, and silver is at a tempting price right now. Low energy prices – crude oil is trending down – gives precious metals even more of an edge.

We said last week that if silver passed $19.60 and kept falling that would be a sell indicator, and that’s as true now as it was then, but the fact the price seems to have stabilized a fraction below that marker changes things slightly. Another sharp drop next week and we’d recommend selling but right now it’s worth hanging on and waiting to see what happens next. There’s a possibility that the price is just visiting that point before a rally, and while our fingers aren’t hovering above the “buy” button a rise next week would make that look very attractive.