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Silver has been acting like other physical commodities. This could be a cause for concern given the macroeconomic and investor sentiment uncertainty.
By Michelle Smith — Exclusive to Silver Investing News
The Shanghai Gold exchange increased margin requirements, but as with COMEX silver margin decreases, the changes appear to have had little immediate effect. Silver seems to be nestling further into its physical commodity personality lately and is showing it by reacting to news that has implications for its industrial demand. And given the economic environment, there is a growing camp that believes the bears could be set to gain ground.
A prime example of silver trading like classic physical commodities is the severe negative reaction the metal had to Flash PMI manufacturing data that showed weakness in Europe and China. This news prompted a terrible start to the week as prices on Monday fell to the lowest levels seen since January 20.
Europe paved a more positive path for silver on Tuesday. Debt auctions in Spain, Italy, and the Netherlands occurred with no negative signals sent to the markets, and European equities strengthened. North America seemed to catch a whiff of the improved market sentiment and silver started out the day trading up. A portion of Tuesday’s gains, however, were attributed to short covering prompted by the previous day’s price decline.
Silver miners were caught up in the negative sentiment seen on Monday. At 5:10pm PST, of the silver mining equities tracked by Kitco, the fifth in the top five was in the red, down 0.62 percent. But, this picture also appeared to improve Tuesday, with silver mining equities showing mixed performance that continued to improve later into the week.
The silver market is still considered highly sensitive to quantitative easing developments. Market participants should have been expecting some volatility in prices ahead of this week’s two-day Federal Open Market Committee meeting. By the closing day, Wednesday, it was revealed that the majority of members were in favor of holding off on a rate increase until 2014, that most voted to keep current easing measures in place, and there was an acknowledgment that higher crude and gas prices had resulted in some rising inflation. The release of such statements could have viewed as bullish for silver, but resulted in COMEX May silver falling below $30.
However, in a press conference that followed, Chairman Ben Bernanke came to the rescue and gave the market what it wanted: a statement about future QE.
“If appropriate, and depending also on assessment of the costs and risks of additional policy actions, we remain entirely prepared to take additional balancing actions if necessary to achieve our objectives. So those tools remain very much on the table and we will not hesitate to use them, should the economy require that additional support,” he said.
Though the statement said nothing more than has been said in the past, “on the table” has positive connotations in this stimulus-addicted environment. The silver market was therefore able to pull itself together and trek back above $30. On Thursday, largely assisted by positive US pending home sales data, silver managed to extend Wednesday’s rebound.
Commodity Futures Trading Commission data shows that silver open interest recently reached the highest level this year. Some are pointing to this as a positive sign for the metal as they believe it is a sign of long accumulation. However, bears appear to be gaining some advantage in the struggle that has has ensued for quite some time. This week, for example, market watchers couldn’t ignore a trend of lower lows and lower highs.
Concerns are growing about the sentiment and outlook.
According to ETF Securities data, assets under management (AUM) in silver ETFs in Q4 2011 was over $14.9 billion, and by the end of Q1 2012 AUM had increased to over $17.8 billion. But on Tuesday Bloomberg reported that silver holding in ETPs declined 0.5 percent, the most since December.
Bloomberg noted that the three-month price low and the climb in exchange stockpiles underscored concern that a global slowdown may curb demand.
CME Group, reporting that its silver stocks had risen 12 of 20 days, standing at over 140 million ounces on Tuesday, described a daily rise of more than 1.8 million ounces as “rather discouraging.”
Further, China published its March silver import data this week, and though it showed a marginal increase from 171 metric tons (mt) to 179 mt, Standard Bank says that though these imports may appear bullish, they aren’t likely to be.
Standard Bank believes fabrication demand will grow in 2012 and China’s mined supply will be insufficient to cover that growth, leaving China the option to fill the gap through imports or draw on stockpiles. However, the bank estimates that China has already amassed silver stockpiles equivalent to about 15 months of fabrication demand, and that the current imports are simply being added to that supply. So, until industrial demand regains full strength, the bank views imports as a risk to cap rallies.
The close
On Thursday New York spot silver closed at $31.09. Though representing a $0.38 gain, this close was below some seen earlier in the week.
Following the US day session, COMEX May silver was at $31.21, up $0.85, near the day high of $31.26. By about 1:00pm PST prices had slipped to $31.11.
Silver miners were mostly green at that time, a noted improvement from the start of the week.
Company news
Aurcana (TSXV:AUN) announced record quarterly silver production at Le Negra mine. The company reported that silver production increased 19.6 percent compared to the same period last year. In Q1 2012, the company produced 287,486 ounces of silver compared to 240,275 in Q1 2011. Grades improved nine percent to 81 grams per ton in Q1 2012 from 74 grams per ton in Q1 2011.
Kootenay Silver (TSXV:KTN) announced the results from an additional ten drill holes in its 25,000 meter drill program at the Promontorio silver project. The company says it hit 18 meters of 254 gpt silver equivalent within 89 meters of 84 gpt silver equivalent.
CEO James McDonald said the high-grade results are further testimony of the success of the multi-phase drill program, adding, “[s]ince confirming our initial NI 43-101 silver resource in 2010, we established one continuous zone of silver mineralization from the Pit (Discovery) Zone through the Southwest Zone.”
Southern Silver Exploration (TSXV:SSV) announced that it has closed the first tranche of its non-brokered private placement. This transaction involved issuing 6,627,000 units at $0.10 for proceeds of $662,700. A unit consists of one common share and one share purchase warrant exercisable to purchase another common share for three years at $0.17 per share.
NQ Exploration (TSXV:NQE) announced that it closed a non-brokered private placement for $100,000. Under the terms 1,538,462 common share units are priced at $0.06 each. A unit consists of one common share and one half warrant entitling the holder to purchase one common share for $0.10 for 24 months.
Securities Disclosure: I, Michelle Smith, hold no equity interest in the companies mentioned in this article.
