Manufacturing Data Derails Silver

Earlier this week silver tried to cover positive territory, but as has been the case recently, glimmers of hope were short-lived. By Thursday, manufacturing data had derailed the metal’s efforts. In a report Monday, Marc Ground, Research Strategist for Standard Bank, wrote that we are waiting for the metal to drop closer to $30/oz. It appears that market participants are also increasingly shedding positive sentiment for the metal and are shying away.

Commodity Futures Trading Commission (CFTC) data released on March 19 revealed another week of declining open interest for COMEX silver. It was the biggest loser among the precious metals, losing 5.2 percent for the week. ETF investors hit their sell buttons, dropping 20 tonnes of silver, and the metal capped off last week down $1.60.

Monday, the metal was able to recover some of the previous week’s losses as it was a day of a weak US dollar, declining US treasuries, and strong crude, but silver prices are now sliding back down.

One might have assumed announcements that India is eliminating duties on silver would have provided some support, if not a boost to the market, but the news appears to be of little interest to participants thus far.

Manufacturing data

Two regions whose news did grab the silver market’s attention are China and the EU.

Thursday revealed that the Flash Purchasing Managers’ Index (PMI), which reflects industrial activity, slipped to 48.1 in March from 49.6 in February, marking five consecutive months of declines. The disappointing figure turned up the heat under simmering fears of a Chinese slowdown.

Aggravating matters was the declining composite PMI for Europe, which fell to 48.7 from 49.3 the month before, marking three months of declines for that region. Also of concern for the markets is the weakness that is being seen in Germany and France, which are considered regional power players. Fears that the region may be on the highway to recession have been inflamed.

That these regions’ PMI figures declined is one cause for concern. Another is that PMI numbers below 50 are considered a sign of contraction, meaning that these economies are heading further in the wrong direction. In the markets, this translates into an outlook for shrinking demand for industrial commodities. Silver came under pressure with other industrial resources such as copper, platinum, and crude, and prices slid.

However, amidst the bad news regarding Europe and China, the US had another positive weekly jobs report. When looking at the economies whose headlines have major market-moving power, the US looked like the bright spot this week. However, good news for the US economy translates into bad news for silver, as investors are lacking confidence in the metal’s global industrial demand, and the strong US dollar diminishes the metal’s safe haven appeal.

The close

Thursday May silver on the COMEX opened at $32.15, but fell to trade at the lowest level since January 20. At the close of New York’s spot market silver was $31.59, down $0.56.

Silver mining stocks also did not have a positive day, with the bulk down throughout the session.

Junior mining news

Endeavour Silver (TSXV:EDR,NYSE:EXK,FWB:EJD) announced its eighth consecutive year of consolidated gold and silver reserve and resource growth. The company notes that its gold resources and reserves saw the most growth because of successful exploration efforts at Guanajuato.

CEO and Chairman Bradford Cooke said that in 2012 Endeavour will focus on the organic growth of its reserves and resources through its ongoing strategic acquisition and exploration programs within the Guanecevi and Guanajuato districts.

El Tigre Silver (TSXV:ELS,OTCQX:EGRTF,FWB:5RT) started its 2012 core drilling program at the El Tigre silver project in Sonora, Mexico on schedule, the company reported. It is targeting Gold Hill, which it says holds a well-developed gold-silver work stock zone. The 2011 drill program also included the Gold Hill area. El Tigre Silver says its current drilling will be conducted 24 hours per day, seven days a week until finished.

Securities Disclosure: I, Michelle Smith, do not hold equity interests in any of the companies mentioned in this article.