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Another week of weakness in the silver market is making it harder to ignore those who say that we are headed toward a major downward trend.
By Michelle Smith — Exclusive to Silver Investing News
Silver appears trapped in a struggle between the bull and the bear. Positive news from the US continues to put pressure on the market, which is struggling to regain its early-year upward momentum. The winning camp remains to be seen, but after another weak week for silver, it’s becoming harder to dismiss forecasts of a downward trend.
Silver prices slid last Friday after the US Department of Labor released a better-than-expected jobs report, but the metal was able to shake off downward pressure fairly quickly. Some of the boost appears to have come from concerns stemming from talk of US military action against Iran and Syria. Though it had to fight through a wide trading range, silver managed to recover some ground lost in previous sessions.
China’s trade deficit
During Sunday’s overnight trading silver prices didn’t manage to put up a new high, with reports that China’s trade deficit was the largest in over 20 years reigniting fears of a slowdown. Investors must remember that China has a super-sized silver appetite, so for many in the market a weak Chinese economy translates into reduced silver demand.
On Monday North America woke up to the same news, as well as the weak silver market that accompanied it. Silver seemed trapped within Friday’s trading range and couldn’t get any positive direction from gold as that market was also weak.
The pressure on silver was starting to paint a potentially dismal picture for the bulls. Market watchers began pointing to the metal’s 200-day moving average and warned that should silver prices drop below that level, a sell-off is likely to occur.
Another blow from the Fed
On Tuesday, silver started off in a positive direction, but was drawn off track by the Federal Open Market Committee (FOMC) meeting.
The Federal Reserve hit the silver market again using the same weapon: failure to announce further quantitative easing. The Fed not only deprived the markets of news of new liquidity, but also used language that suggested its outlook for the US economy is growing slightly more positive. On top of these actions, the Fed described US inflation as subdued.
The FOMC meeting, which was translated by the markets as positive for the US economy, was followed by a strong dollar and soaring stock market. The pressure on the silver market was overwhelming and support gave way. The market saw a sharp sell-off on Wednesday, and May silver contracts on the COMEX fell to their lowest level since January.
Thursday’s weaker dollar allowed silver to put up a fight for the bulls, but the bears were likely pleased by indications of positive US manufacturing data, which is just one factor that supports claims of an improving US economy. It was also another strong day for the equities markets, which have been siphoning cash from precious metals this week, and likely continued to do so today.
The close
Following Tuesday’s sell-off, the New York spot price closed at $32.15. Today the metal managed to make some gains, settling for the day at $32.54. May silver on the COMEX has not fared as well. During US trading, it was unable to escape Wednesday’s trading range. At 5:30 pm EST the price was $32.51.
Silver mining stocks showed mixed performance today, with many showing gains and a substantial number in the red.
Company news
McEwen Mining (NYSE:MUX,TSX:MAQ) announced a new silver discovery at the El Gallo Complex in Mexico. The company said the new discovery returned 629.4 g/t silver over 6.1 meters and its Palmarito deposit returned 240.7 g/t silver over 8.6 meters. Both areas have mineralization that starts from the surface.
Junior company news
Great Panther Silver (TSXV:GPR,AMEX:GPL) reported a 37 percent increase in revenues for 2011 when compared to 2010. The company’s revenues were reportedly $57.8 million, with gross profit up 64 percent to $26.9 million. Robert Archer, President and CEO, said the increase in profitablity and cash flow has enabled the company to step up investment in its properties and in exploration to drive growth in 2012 and beyond.
Securities Disclosure: I, Michelle Smith, hold no equity interests in the companies mentioned in this article.