Same tune, different chorus. The European debt saga continues to weigh on silver. As Spain’s bond yields surge and public finances deteriorate, concerns are mounting that the nation’s banking sector will need a major bailout. On Tuesday, credit rating agency Egan-Jones downgraded Spain’s sovereign debt rating – again – this time from BB- to B. Another blow for Spain came this week when European banking officials clipped the wings of the government’s plan to recapitalize its biggest bank, Bankia, with 19 billion euros, a move considered a “backdoor bailout.” The euro remains weak and has fallen to historic lows versus the dollar. Meanwhile, the greenback is still wallowing in scared money. The drop of the yield on ten-year US bonds to a record low highlights the extent of the flight to safety.
Spain’s problems have been a major drag on the euro, which fell to a two-year low against the dollar. Meanwhile, safety seekers have been piling into the greenback, a move that has not been good news for silver.
For the first couple of days, silver spot prices and futures prices were up in India. The strength was largely attributed to demand in the spot market.
Silver prices were also up Tuesday in London, with the metal closing at $28.55.
However, in North America the picture wasn’t as pretty. Tuesday marked the delayed start of the US trading week, and with that event came silver’s inability to hold its head above $28. Silver underperformed its industrial peers, including platinum and copper, and the New York spot market closed at $27.88.
By mid-week, spot demand in India had waned. Indian investors again started taking cues from the weak global trend, and silver prices tumbled as a result.
In North America, silver managed a gain Wednesday and July silver on the COMEX closed near the session high. This strength was attributed to short selling and bargain buying, and the upward momentum was temporary.
Thursday, ahead of North American trading, the dollar weakened, which could have been bullish for silver. However, against the backdrop of Eurozone troubles, investors were concerned about the larger macroeconomic picture, and that allowed the dollar to recover and put pressure on silver to return.
Though the dollar is the safe haven of choice, this week there was a notable amount of disappointing data from the the US. For example, when commenting on the report that includes the Chicago PMI, Alyce Andres-Frantz, Chicago Bureau Chief, said these are recessionary numbers. “The boomlet seen from February to April has abruptly ended,” she also said.
The US jobs report for May is scheduled for release on Friday. As usual, this is a highly anticipated event. Expectations are for a gain of 150,000 jobs, but many market participants say other data suggests disappointment. Investors should be prepared for this report to be a market mover.
Furthermore, market participants warn that both euro concerns and the dollar are likely to continuing weighing on the silver market in the near term, and some suggest that further price declines are likely.
July COMEX silver last traded down $0.23 at $27.75. New York spot silver closed down $0.22 at $27.71.
The latest Commodity Futures Trading Commission data reported a seventh week of declines in net speculative length for COMEX silver. The 56.3 tonne drop brings the total losses for the period to 1,770 tonnes. However, like the previous week, ETF investors appeared more optimistic, adding 144.9 tons.
Securities Disclosure: I, Michelle Smith, do not hold equity interests in any companies mentioned in this article.