Silver Market Update (8-26-2014)

Silver prices dropped again last week, making it the fifth slide in a row. A closing price of $19.39 put it down 26 cents on the previous week’s finish, so its fall does seem to be slowing slightly. It might also be coming back into synch with gold, which also saw a substantial drop over the period.

As for gold, the main reason for silver’s continued fall is most likely to be the recovering equities market. The Dow Jones Industrial Average continued to climb steadily, and has now recovered almost all of its losses from late July. Its rapid loss of 500 points severely shook confidence in stocks, boosting metals, but that confidence seems to be returning. Silver investors need to watch how stocks perform over the next couple of weeks. If this recovery is just a correction after the fall and the market flattens out silver prices are likely to recover; it’s probably undervalued where it is. What to be wary of is equities resuming the steady rise they were showing until late July, which will depress demand for safe hedges like metals.

Looking around, there are reasons to be optimistic that silver will see at least a modest recovery in the near future. Continued worries about a new European debt crisis are likely to make investors wary, and the economic recovery in the USA isn’t underpinned by healthy personal finance figures. That poses a real risk to consumer demand, threatening to slow the already unsteady growth figures, and that’s likely to make investors look again at gold and silver. At the current prices silver is looking very attractive to anyone who sees it gaining value in the short to medium term.

Silver’s now well below the $19.60 level where we were looking at recommending selling it off, but while it hasn’t stabilized as we thought it might a week ago the pace of the decline looks to have slowed. If it continues to drop next week we expect to see some support around the $19.25 level and that means it’s worth hanging on a bit longer to see what happens. There’s no reason at all why it shouldn’t rally in the near future so it would still be premature to offload your stocks. That’s a decision that needs revisited if the spot price drops below $19.25, but for now we still think it’s a keeper. Watch the international situation carefully, especially the price of crude oil; if that starts to rise sharply silver could be looking at another fall. The oil market does seem stable at the moment, however, as momentum against the ISIS militants in Iraq builds up.

Most analysts have been saying for months that silver is seriously undervalued; industrial demand remains high and there are no major new deposits opening up, so the underlying trend should be upwards. That hasn’t kicked in so far but it’s almost inevitable that it will at some point. More than anything else that’s a good reason to hang on – and to buy if the price hits a hard floor and starts to take off again.