The silver market is always volatile. Prices have dropped into teen dollars several time in the last couple of days, but pullbacks have dragged it back to the $20 strong point. Today, a sudden dip following data on capital goods orders may be too much for rates to recover.
At the time of writing (2300 GMT), silver is 24 cents down on yesterdays close and looks to be faltering at $19.76. In the wake of the Ukraine crisis and poor economic data, silver had rallied for almost eight weeks, but now the economy is showing signs of turning itself around, precious metals are on the decline.
But the stock market is a strange beast. Early trading today saw both gold and silver enjoy upwards trends as the demand for physical gold has increased now prices are more attractive. China is also importing huge quantities of gold and silver in order to satisfy the appetite of Middle-Class consumers.
But whatever the Asian market does the US market reverses it. Yesterday morning silver prices were down, but once the Asian market closed and Wall Street took control, price rallied again – despite ending the day with a double bogey over par.
How to price silver
Analysing silver prices is difficult for traders due to outside influences and bank controls. Ordinarily, silver follows the same path as gold although it is more volatile, so prices drop lower in decline but peak higher when bullish. With gold looking to be on the way down, silver will no doubt take the same course – but how far will it drop.
Central banks and governments do not want the value of precious metals to fall too low as they are used as a hedge against other investment, and with uncertainty over the strength of the US dollar banks need to protect themselves against financial disaster.
The decline of precious metals coincided with the decision taken by the US Federal Reserve to taper their stimulus program until ending it sometime in Autumn and interest rates are likely to be put up early next year.
This is a firm indication the US economy, and subsequently the global economy, is getting stronger, meaning currency is getting stronger and there is less need for gold and silver. However, long-term prospects favour precious metals.
Investing in silver
The global economy is being supported by electronically printed money that has been pumped out by Central Banks around the world for five years. The purpose is to fuel the short term economy, but analysts fear it will increase the burden of debt in the long run.
It is hardly surprising that the majority of market speculators predict a financial crash that will make the 2008 banking crisis look like a broken piggy bank. The credit culture is destined to end in economic strife which will forge the rise of gold and silver prices. And the value of silver could top its all-time record of $49.45 in January 1980.