Silver Market Update (8-8-2015)

The silver market didn’t really go anywhere last week despite some minor fluctuations; early losses were balanced by a slow but steady climb on Thursday and a Friday morning jump. From a Wednesday low of $14.50 the spot price recovered to $14.81 by the time markets closed for the week, a gain of two cents over the previous close. That’s well under one percent, so doesn’t really say a lot about the future direction of the market. On one hand it’s worrying that, considering the week’s events in other markets, silver barely rose at all; on the other, there was no large movement away from the metal that would signal a continued erosion of confidence.

The biggest driver of commodity prices is usually the equities market; when shares rise, commodities – including silver – tend to fall. Last week the Dow Jones dropped steadily through the period, posting an overall loss of more than 200 points. The Chinese markets also flagged badly, and China is a country that’s traditionally been quick to buy bullion when equities lose value. The combination of those two factors should have been enough to give silver a significant boost. Add in the fact that the Eurozone market is still looking depressed, with the single currency obstinately stuck at around $1.09 and worries about Greece rumbling on. It’s true that some stock markets showed gains – London’s FTSE 100 climbed through the week – but that shouldn’t have been enough to keep silver down.
At this point it’s worth looking outside the box and asking if silver really is down. Its dollar price has been static or falling for a while, but that’s in the context of a strong greenback and dollar-denominated market. The perspective elsewhere might not be the same. For example Indian investors saw last week as good for silver, with a rise of close to 1 percent on Friday. The dollar’s strength could be masking a fairly significant rise in the spot price. Obviously that doesn’t help US investors much, but it could be that at a global level demand for – and confidence in – silver is a lot healthier than a simple look at the spot price suggests.

Dollar investors don’t seem to have a lot of confidence in silver just now but fundamentally it remains a sound investment. There’s a steady industrial demand that shows no sign of shrinking anytime soon, and new uses are constantly emerging – the fast-growing electronic cigarette market increasingly uses silver-plated contacts, for example. Meanwhile production is fairly stable, with no major new sources on the horizon and some existing ones looking quite marginal at current prices. Any further price falls could see some mines cease production, without doing anything to cut industrial demand.

There’s increasing speculation about interest rate rises, which have the potential to depress silver even more, but in the longer term the global economic recovery is far from secure and few observers are confident enough to rule out a slide back into partial recession. That makes silver worth hanging on to, and the price right now makes it easy to build up substantial stocks cheaply.