Silver Down on the Day Yet Support Remains

By Michael Montgomery—Exclusive to Silver Investing News

Silver traded down on Tuesday, following a four-day run that brought the price of the white metal to $40.55 per ounce.  On the day, spot silver was down $1.022 to $39.56.71 per ounce. The movement of silver has analysts citing that investors are looking for safe haven assets in light of the concerns with Eurozone debt, the approaching US debt ceiling, and the Fed hinting at QE3.

The probability of the US defaulting on the debt is relatively low, as much of the debate is largely partisan politics, and very few expect that Congress will not to raise the debt ceiling. The question is whether the vote will happen ahead of the August 2nd deadline. President Obama has stated that he hopes to draft a resolution by July, 22 in order for Congress to have time to vote on the measure. If the debt ceiling is extended analysts expect that a correction will come to precious metal prices.

“It would be taking one of the pegs, or legs, from the fundamental support to the market,” said Dave Meger, director of metals trading with Vision Financial Markets. He added, “The problem has subsided, but it has not gone away.”

Tuesday’s downward price trend may be early precautionary selling, or profit taking in light of recent gains. However, analysts agree that the structural issues with debt and loose monetary policy are not going away, which will benefit precious metals going forward.

Jamie Greenough, an Investment Advisor with Global Securities Corp., spoke to Silver Investing News about the silver market and recent price movements.

The fall in silver’s price from the almost $50 highs in late April may have created a solid foundation for the silver market, shaking out some of the ‘weak long’ positions.

“The CFTC absolutely slammed the market by raising margins, which took the wind out of the sails for silver. Now the silver market has had a chance to build a base, and finally digest the requirements,” stated Greenough, adding “It appears that there is now a solid base for silver around the $35 per ounce level, and we are now seeing some appreciation.”

The solid base created in the wake of increasing margins requirements is due to current investors being vested in the market for a long term store of wealth, not to make a quick profit with speculative plays. Other analysts have echoed this sentiment.

In an article on Silver Investing News in June, William Rhind Managing Director of ETF Securities commented, “From our perspective we saw investors holding through that period, which suggests that the longer term money is still bought into the silver market.”

Silver’s performance is still behind the historic silver to gold ratio. In 1980, at the time of the last great surge in gold and silver prices, the ratio was 17 to 1. “You have to look at gold above $1600, right now the gold to silver ratio is low, one would think that silver would be doing better,” stated Greenough. The current silver to gold ratio is approximately 40:1 suggesting that, in a historical context, there is upside potential for silver.

The main factors driving the precious metals markets since the economic downturn has been the fear of loose monetary policy, and debt concerns. Both of these concerns are not likely to subside in the short run. When asked about the potential for silver going forward, Greenough stated, “I don’t think that we have seen the high for the year.”