After resisting outside market pressures and squeezing out a nickel gain on last Friday, silver started this week under pressure and prices fell. By midweek, market sentiment had improved and silver prices managed a recovery.
This week started with another flare up of concerns about the Eurozone crisis. The Greek prime minister said that the nation is experiencing a depression, and a German publication reported that the International Monetary Fund may stop providing aid to Greece. This announcement followed reports that the European Central Bank (ECB) will stop accepting Greek bonds as collateral for funding, at least temporarily.
Exacerbating matters were reports that numerous regional governments in Spain will likely require aid. Considering Greece, the markets were plagued by the question: what if Spain also needs a bailout?
Spain’s borrowing costs have been soaring and warnings that the rates are unsustainable are increasing. On Monday, rates on benchmark 10-year bonds surpassed the dreaded 7 percent rate and rose to 7.45 percent, the highest the nation has seen since the launch of the euro in 1999.
Amidst this negative sentiment, silver opened the week lower and finished the first day of trading down $0.27 at $27.06. Still under pressure on Tuesday, silver danced on both sides of $27, but was unable to close above that level.
Overnight Wednesday, an improvement in equity markets and a weakening of the dollar paved the way for renewed optimism. Recent weak data, including a Wednesday report showing that new US homes sales declined in June, promoted the belief that easing from the Federal Reserve is likely. The improved sentiment provided support for silver and the metal closed up $0.38 at $27.34.
On Thursday these factors were topped by further support from ECB President Mario Draghi, who expressed commitment to doing what is necessary to preserve the euro.
Data from China underscores continuing weakness in industrial demand for silver. China’s imports of the metal for June were 23 percent below those in 2011. Year-to-date imports are down 32 percent. Significant stockpiles are still thought to exist and as noted in earlier silver comments, these are expected to act as a cap for rallies.
Last week, ETF investors added 148.7 tonnes of silver to their holdings. At current levels, silver is expected to get some bargain-buying support. Standard Bank says a continued buildup could be a sign of growing confidence since last week’s addition follows hefty losses earlier in the month.
COMEX futures, however, continue to be clearly bearish. The Commitment of Traders report for the week ending July 17 shows not only declining open interest, but also a further build up of short positions. The short positions are now 2.5 times the five-year average.
A previous market comment discussed the risk that stops below key support levels could become targets. Again this week there were discussions about the possibility that “big money” may drive prices below those levels, gunning for those underlying stops. If that happens, silver prices are not expected to decline for long. On the contrary, the big boys’ motive is to mop up cheap positions and rake in profits on the upside, so a price reversal is expected to occur fairly quickly.
There is a Federal Open Market Committee Meeting from July 31 to August 1. It will, of course, be an event that is very much on the radar.
The COMEX September contract closed the US session at $27.44. The New York spot market closed with silver up $0.20 at $27.54.
Silver stocks were mostly in the green on Thursday.
On July 20, Parviz Farsangi stepped down as president, CEO, and director of Scorpio Mining (TSX:SPM) to pursue other career opportunities. Peter Hawley, founder and former CEO, was appointed as interim president and CEO.
Ewan Mason will replace Hawley as chairman.
Securities Disclosure: I, Michelle Smith, hold no direct investment interest in any company mentioned in this article.