On Wednesday silver fell below the $30 per ounce mark for the first time since October. While some modest gains were made on Thursday, there is a real possibility that silver will be a net loss over 2011. Analysts stress to stay focused on the Eurozone and Dollar Index.
By Michael Montgomery—Exclusive to Silver Investing News
Over the course of the past week the precious metals market saw dramatic sell-offs in the wake of the ongoing political and economic problems in Europe. The strength of the US dollar is a key to the weakness of the precious metals market right now. Investors are currently seen to be running to the dollar for liquidity and also as their safe haven asset.
On Wednesday silver dropped below the $30 per ounce support level for the first time since early October, the low for the year came in late September. Over the past month gold and silver have fallen 11.6 and 12.9 percent respectively. There is a lot of work to be done if the market is to rebound to the price levels that gold and silver bugs have been telling investors were as good as certain.
On Thursday, silver broke from convention and posted gains while gold continued its downward trajectory. Silver made a modest gain of $0.32 to $29.28 per ounce, while gold fell $5.90 to $1,570.60 per ounce. Silver Futures traded up $0.205 to 29.14 per ounce, and gold lost $14.40 down to $1,572.50 per ounce.
For silver the ongoing troubles in Europe continue to weigh on the market. While the troubles are nothing new, most analysts agree that it is the single most important factor right now.
“We’ll have to continue to talk about Europe, because it remains in the forefront… [gold and the euro] have been trading hand in hand virtually every single day. At the end of the day this is the principle radar item for commodities traders as we head into the home stretch of the year,” stated Jon Nadler for Kitco. He added, “Of course the dollar dominates the situation right now.”
There is seemingly no end to the troubles in Europe. The infighting over the size and scope of the bailout prolongs the fears that the world economy is heading towards a recession.
Christine Lagarde, Managing Director of the IMF is increasingly pessimistic about the situation, mentioning that no one country or group of countries can solve the crisis. Her view is that there is still a pervasive downside risk.
“[T]he risk from an economic point of view is that of retraction, rising protectionism, isolation. This is exactly the description of what happened in the ‘30s and what followed is not something we are looking forward to,” stated Lagarde.
Greenback gains strength
The US dollar index is firmly above the 80.00 mark, though on Thursday it did come off 0.24. As the Eurozone problems persist, investors are seen to be flocking to the US dollar. Consequentially, as the dollar is gaining strength, commodities are taking it on the chin.
“The dollar strength is obviously having a dramatic effect on commodities across the board,” stated Kingsview Financial analyst, Matt Zeman.
Going forward, the dynamic between the Eurozone crisis/bailout deal and the US dollar should be the main factor that investors look towards.
With only a few trading sessions let on the year, physical silver may end down on the year and silver ETF’s may post the first year of losses since their inception in 2006. It’s been a bumpy ride, from around $30 per ounce, up to almost $50, and back right back to where we started. There is still some time left, but its running out.