Is Silver’s Industrial Personality Leading to Changes?

Silver lacked strength again this week, closing lower each day on the New York spot market. On several occasions it portrayed uncharacteristic behavior that appears to be consistent with its shift toward an industrial personality. Given the macroeconomic backdrop, it seems that as silver moves in that direction, the market’s optimism toward it is decreasing.

The Commodity Futures Trading Commission report for the week ended April 24 showed further cuts in bullish positions in silver. There was a decrease of 5,016 contracts in the net-long position. Also, Barclay’s Capital reported that silver ETP investors dropped 194 tons of the metal last month.

Silver started the week taking direction from industrial metals markets, which were under pressure from a weak euro, weak European equities, and overall concern about the Eurozone. Keeping the company of the industrial commodities appears to be starting to affect how silver reacts.

On Monday, the US dollar was at its lowest level since leap day. Yet silver didn’t receive the benefits that were expected. Instead, the metal took out the prior two sessions lows and closed down $0.26 at $31.01 on the New York spot market.

That follows an uncharacteristic reaction to Friday’s lower-than-expected GDP, which came in at 2.2 as opposed to estimates of 2.5. Silver did not display an overtly positive reaction to the negative news as seen in Q1.

On the contrary, a market comment from CME Group said “the bull camp in silver didn’t seem to be as keen as gold to benefit from the idea that slowing US data could bring the US Fed off the bench sooner rather than later.”

This shift in behavior was seen on a number of occasions throughout the week. The market, which once seemed desperate for poor US economic results, this week seemed to be developing a sense of dread for bad reports. It was as if silver suddenly recognized the implications of being associated with physical commodities instead of being viewed primarily as a precious metal. As price weakness continued, some market watchers even began to suggest that it may take positive US data to give the metal a boost.

Another notable deviation from the so-called norm of correlations occurred in India, where investors were safe haven buying this week. Investors were shifting from equities and forex into metal. However, they did not put their rupees into silver. On Thursday, gold reached an all-time high of R29,695 in India. Still, that is the metal in which the markets sought safety. Generally when the yellow metal gets that kind of attention silver piggybacks to some degree, but not this time. Silver actually declined that day, and the primary concern was reportedly reduced industrial demand.

Could this be a suggestion that silver has lost or is losing its safe haven appeal?

All week the jobs report from the US Labor Department has been a major focus for the market. That report is slated for release Friday morning. It may be interesting to observe how the silver market reacts.

The close

On Thursday, COMEX silver hit a fresh four-month low. The July contract was last $30.11, down $0.53. Silver on the New York spot market slid $0.58 to $30.07.

Miners were mostly in the red on Thursday and the board seemed to turn redder toward the close of US markets.

Company news

El Tigre Silver (TSXV:ELS,OTCQX:EGRTF,FWB:5RT) announced a non-brokered private placement involving the exchange of up to 12,000,000 units at $0.25 per unit for aggregate cash proceeds of $3,000,000.

Each unit will consist of one common share and one-half of a common share purchase warrant. Each whole warrant will entitle the holder to an additional common share for $0.40 for 18 months.

The company said the proceeds will be used to further the work on its tailings recovery project and for general working capital.

Securities Disclosure: I, Michelle Smith, have no equity interests in the companies mentioned in this article.