Silver Below $30

Last Friday markets were hit with disappointing US jobs data. Silver slipped below the $30 level – not for the first time this year – but as before, the metal managed a quick rebound. However, this week, silver fell below $30 and it hasn’t been a brief dip. The metal has been unable to recover and it is unclear when, how, or if silver will find its way back anytime soon.

The European crisis went from a simmering concern to full-blown worry that over boiled and scorched the markets this week.

Negative sentiment seemed to have been sparked by the French voting Sarkozy out and Greece’s lack of consensus on a government. These changes in government prompted concerns that there could be a change in government commitments to austerity.

Greece began to dominate investors’ concerns as it was due for another tranche of bailout money and there were rumors that the funds might be withheld. Discussions emerged about which countries may leave the European Union, by force or by choice, and what that would mean for the world.

Spain aggravated matters midweek when it was revealed that the yields on its ten-year bonds rose above six percent, a rate that is viewed as unsustainable.

Added to these circumstances was disappointing trade data from China, which reported exports and imports for April that were below expectations. Analysts were looking for imports to rise by double digits; instead the increase was only 0.3 percent. Exports were projected at 8.5 percent but were only up 4.9 percent. These results of course were fuel for the flames of speculation about a Chinese slowdown, which placed pressure on physical commodities such as silver.

The negative vibes in the market this week served the dollar well, with scared money fleeing to the greenback as other markets suffered. Silver, already in an extended downtrend, moved further downward. And as the metal has declined, investors have continued to move away from the market.

Recent Commodity Futures Trading Commission data shows that silver in COMEX warehouses surpassed 142 million ounces on May 1. That’s the highest level since 1997, according to Bloomberg, which also reported that money managers have cut their wagers by 68 percent over the past two months.

Net speculative length for COMEX silver has now posted a month-long decline, with losses of over 900 tons.

Standard Bank said the the drop in longs is a cause for concern and underscored the persistent lack of investor confidence.

Souring attitudes are also evident among ETF players, the bank noted, reporting that these investors dropped another 18.5 tonnes of metal in the span of a week.

Silver futures in India have shown weakness this week. Analysts have pointed to overseas trends, the strengthening dollar, reduced appeal for precious metals, and subdued demand on the domestic spot market now that the wedding season has passed.

At $28.96, silver hit the lowest level since January 10 in Singapore on Wednesday.

ScotiaMocatta reported that the gold/silver ratio was about 1:50 in early April. According to the bank, an increasing ratio suggests interest in bullion is fading. The ratio Thursday was 1:54.85.

“The overall macro economic outlook doesn’t look to provide any support to silver prices in the near term,” said a market comment from CME group.

With silver now dwelling below $30, many market participants are looking for prices to fall deeper into the the $20s.

The close

Following the close of the US session, July silver on the COMEX was down $0.21 at $29.24. By 2:37 p.m. PST, the price had slid further to $29.01. Spot silver in New York closed down $0.23 at $29.04. Silver miners were mostly in the green.

Company news

Alexco Resource Corp. (TSX:AXR,AMEX:AXU) reported a 30 percent increase in silver production in Q1 2012 as compared to the same period in 2011. In addition to producing 581,808 ounces of silver, the company also had increases in lead and zinc production. Yet its gross profit from mining operations dropped from CA$9 million in Q1 2011 to CA$7.2 million in Q1 2012.

President and CEO Clynt Nauman said the quarter on quarter financial comparison was impacted significantly by metal prices in the first quarter of this year (US$32.81) compared to last year’s first quarter (US$39.88).

Southern American Silver (TSX:SAC,OTC Pink:SOHAF) closed the final tranche of $9.6 million of its $16 million private placement offering of ten million units of the company.

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