Silver’s Need For Rescue Increases As Price Fall Continues

Downward pressure in the silver market has not abated. Friday’s action provided a clue as to what was in store this week. Silver was pushed below its 50-day moving average and though it could not be kept down at that level for the close, the metal lost $0.75. As North America slept Sunday night, pressure was again applied to the market, setting silver up for a week that saw it touch new lows.

A market focal point this week was a two-day Federal Open Market Committee meeting that appears to have produced nothing especially meaningful for the silver market — except perhaps disappointment for those wanting more action from the Fed. The benefits of QE3 are rapidly disappearing and US economic data continues to improve. That is not only weighing on hopes that the Fed will be prompted to act more aggressively, but is also leading to speculation that its current program may not continue as long as many would like.

More market participants are starting to draw the conclusion that instead of expecting to thrive on monetary policies, investors are going to have to get used to the idea of markets driven by fundamentals. For silver, that could be a reason for concern.

Scotiabank, a major market participant, has quickly changed its bullish tune. “We are bearish so long as silver trades below $33.40,” the firm said in a market comment.

News of a 2.8 percent decline in Chinese silver imports in September was also a source of pressure on silver this week. Furthermore, HSBC warned that future Chinese demand for silver may be curbed due to an oversupply of solar panels. The bank referred back to its belief that silver demand for solar panels is also declining for two other major producers: the US and Germany.

The latest Commitments of Traders report reveals continued erosion of net speculative length and open interest for COMEX silver. Two weeks ago, silver ETF investors dropped 25.5 metric tons. Last week, the outflows more than doubled, with 54.6 metric tons of silver sold.

The Close:

An improvement of sentiment was seen in the markets Thursday. Silver was able to draft support from rising gold prices and speculation about forthcoming monetary policy from the Bank of Japan. December silver on the COMEX was about $0.50 higher at $32.12 after the US day session closed. The final New York spot price was $32.11, a $0.38 gain.

Silver needs more than an up day here and there. Market participants continue to warn that silver bulls must step their game up as silver’s risks of falling solidly into bear territory are increasing.