Silver Market Update (9-1-2014)

Silver BullionWe noted last week that the fall of the silver spot price seemed to be slowing down, and suggested holding fire on a sell order to see what happened. Sure enough, after an initial fall on Monday that saw the price go as low as $19.37.65 it steadied and began to haul itself back up, with a peak of $19.51 on Thursday morning and a closing price of $19.46. That’s only 7 cents up on the week before but it’s a move in the right direction, and encouraging news for everyone who hung on to their silver.

One possible reason for the recent fall in silver is that the number of short contracts for the metal was at its lowest level for the year, which always tends to depress prices by leaving the market vulnerable to renewed short selling. The good news is that a lack of shorts has brought silver down before, and the movement ended in a bull rally. There’s every chance that could happen again, which could be very promising for anyone who buys in at the current price. Now speculators are taking another look at silver, with the number of short positions held rising from 12,000 at the start of August to nearly 28,000 now. That makes it sensible to be ready for a strong upward move.

Another likely driver is the state of the equities market. The Dow Jones and FTSE 100 both took serious drops in late July, knocking off everything they’d gained this year. Stock prices then rallied and climbed back to where they were before the fall, but now they seem to have stuck at pretty much the same level. The Dow made only small gains last week, and this is inevitably going to affect investor confidence. When that’s shaken they look for safer options, and very often that means precious metals. Again that’s good news for silver.

Many analysts are now saying that the long slide in the spot price – it’s now lasted over six weeks – is likely to be at an end, and September should see a strong recovery. With a peak in short contracts approaching a lot of the speculators are going to liquidate them and start picking up long positions, and historical data points to that pushing the price back well past $20. The target being talked about now is for silver to get to $22 and start building some new support at that level, and many observers – not just incurable optimists – think that could happen within the next couple of months.

If they’re right, that means the current price should be looking extremely tempting. Pick up silver now and by the end of the year it’s likely to be safely above $22 and possibly pushing $24. Forget any ideas of selling physical silver and look at how you can position yourself to be ready for the rise. With short positions likely to come on the market in increasing numbers there could be some real bargains around for anyone with an eye on the chance.