With No Signs of Easing, Silver Prices Fall

Last week ended with silver pulling off a Friday recovery. The New York spot market closed with the metal at $28.68, having gained almost $1 for the day. This performance was fuelled by bad news, most notably regarding the US labor situation. After achieving a four-week high on Wednesday, silver prices have again fallen ahead of today’s trading session due to a lack of information about new monetary policies.

To say last Friday’s jobs report was disappointing would be an understatement. Non-farm payroll jobs created came in at 69,000, which is drastically less than the 150,000 that was widely expected. Furthermore, unemployment rose from 8.1 percent to 8.2 percent when it had been expected to remain steady. The release of this data marked the beginning of the day’s rally.

On Monday silver started off showing signs of weakness. Though the metal didn’t return all of Friday’s gains, a sustained rally momentum clearly was not driving the market. Instead, there were high expectations that monetary easing would come from somewhere. Seeing more indications of slowing in China, the EU, and the US, market participants anxiously awaited an ECB meeting that was scheduled for Wednesday and Federal Reserve Chairman Ben Bernanke’s testimony on Capitol Hill on Thursday.

Nothing much came from the ECB, but the market didn’t express disappointment. On the contrary, on Wednesday silver broke through the $29 technical resistance level that had been overhanging the market since mid-May, and closed in New York at $29.43, a four-week high.

Thursday morning, silver prices continued moving up, at one point reaching $29.62. Then, shortly ahead of Bernanke’s testimony, silver prices began to drop. The more the Chairman spoke, and failed to commit to more quantitative easing (QE), the further over the cliff silver fell, appearing to bottom in the midst of the Q&A session at about $28.47.

With regards to QE, Bernanke continued to say the same thing that he has said on other occasions: the Fed is prepared to act if it is deemed necessary.

In 2012, a trend has developed whereby silver prices get knocked around by QE expectations. Those expectations are often connected to employment data since many people promote and buy into the idea that a weak US labor market will prompt or at least influence the Fed’s decisions. The basis for this thinking is that the Fed will interpret a weak labor market as a sign that the US economy is ailing and needs an injection.

It may be an important takeaway then to note that Bernanke may instead view the labor situation as consistent with the present stage of the economy instead of as an indicator of its weakness. He told Congress, “[i]t may also be the case that the larger gains [in employment] seen late last year and early this year were associated with some catch-up hiring on the the part of employers who had pared their workforces aggressively during and just after the recession. If so, the deceleration in employment in recent months may indicate that this catch-up has largely been completed, and, consequently, that more-rapid gains in economic activity will be required to achieve significant further improvement in labor market conditions.”

On another note, James Steel, chief commodities analyst for HSBC, said the silver market may want to pay attention to strong production. A lot of silver is coming out of bimetallic mines, as producers are finding a lot more silver when looking for other metals, he said, also noting that some primary producers are seeing or expecting increases.

“This may not send prices down, but it may determine how much the market could rally,” he said.

The close

July silver on the COMEX closed near the session low on Thursday, with prices last down $0.89 at $28.60, having forfeited all of Wednesday’s gains. New York spot prices closed at $28.59, down $0.84, placing silver once again beneath the $29 resistance level. Miners’ share prices were mostly in the red by midday in Canadian trading.

Company news

Aurcana (TSXV:AUN,OTCQX:AUNFF) reported that surface drilling intersected a high-grade zone at the Shafter silver mine.

President Lenic Rodriguez said this finding is the highest-grade intersection encountered to date, and the company expects to encounter more of the same as it develops the underground operation.

Silver Range Resources (TSXV:SNG) announced exploration and drilling plans for the Silver Range and Mint projects in the Yukon Territory. The expected cost of these phase one programs is $10.2 million.

Silvermex Resources (TSX:SLX) announced approval to resume trading its common shares in the US. The company expects this to occur on OTC Link under the symbol GGCRF.

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