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Silver has been holding steady, closing at $33.72 on Monday trading. However, the white metal seems to have lost some of the momentum witnessed in January and earlier in the month on Greek uncertainty.
By Michelle Smith — Exclusive to Silver Investing News
Silver closed last Friday at $33.59, showing weakness that was mostly blamed on Greek uncertainty. The government, in need of $14.5 billion to make bond payments on March 20, was able to reach a deal approving further austerity measures over the weekend. This comforted the markets to some degree, as it seems likely that the country has taken the necessary steps to receive more bailout money. Today began with silver appearing to be on a positive path with the metal surpassing the $34 mark. But, it settled back down to close at $33.72.
The white metal is holding its ground, but appears to have lost the upward momentum seen last month and leading into February.
The Silver Institute says that the spot price for silver is determined by the COMEX. But recent news from CME Group which could have proved positive for the metal hasn’t done so.
CME Group announced a reduction of margin requirements for certain commodities, including silver. These changes are set to take effect at the close of business today, and will result in a reduction of about 13 percent for silver contracts.
According to CME Group, margin rate adjustments are not based on metal prices, nor are they used to attempt to control volatility. Rather, margins are raised or lowered in response to volatility, as a risk management tool to provide security to the market and market participants. Claiming to be neutral, CME Group says it has no interest in moving the market in any particular direction.
Though it may not be its intention, there are some expectations that the margin rate reductions could benefit silver. Last year CME Group implemented multiple increases, which made the price of obtaining and maintaining positions more expensive, and these generally coincided with declining silver prices. The latest reduction now makes it cheaper for investors to take positions which could boost prices.
US President Barack Obama unveiled the 2013 budget today. Of note is his intention to raise taxes on the wealthy and to significantly raise taxes on their dividend income. The markets appeared to disregard this news as well. While it will undoubtedly be fuel for political drama, it may continue to have a limited impact on the markets since the budget proposal is largely expected to go virtually nowhere with Congress.
While general concerns about the global economy are being given some consideration, the silver market still seems preoccupied with Europe. The Greek government’s deal for further austerity is just a single step forward in a process that is still riddled with risk. European finance ministers still have to approve Greece’s plan. Then, if it is approved, concerns remain about whether the Greek government will implement the measures. And there are skeptics who point to the nation’s previous failures to live up to its commitments.
Investors should realize that Greece is expected to continue to act as a drag on silver until there is certainty about what will happen. Volatility caused by these headlines should be balanced with a clear assessment of the other positive fundamentals for the metal.
On Smartstox, when asked about about silver versus gold, Dr. Michael Berry, Publisher of Morning Notes, says he favors silver. It is a very important industrial metal with a significant demand, and it also can take the shape of money, he said. He added that if we do get a recovery and we may get a muted recovery this year, I think silver will do quite well.
Securities Disclosure: I, Michelle Smith, hold no direct investment interest in any company mentioned in this article.