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Silver price down 13% this week but that is what silver does - analysts
(Kitco News) - As a as a storm of selling pressure has hit gold, a hurricane has collided with silver as prices are down 13% so far this week. The precious metal is seeing its worst week since its selloff in 2011.
“silver is doing what silver does, which is frustrate investors,” said Ole Hansen, head of commodity strategy at Saxo Bank.
Hansen said that while there are a number of factors currently working against silver, the biggest driver has been the rally in the U.S. dollar. The U.S. dollar index has pushed to nearly a 2-month high above 94 points.
“The U.S. dollar continues to see some short-covering and all commodities are suffering,” he said.
Hansen said that silver could have room to fall further and he is watching initial support at $22.90 an ounce.
Robin Bhar, independent commodity analyst, said agreed that the U.S. dollar is a significant driver behind the recent weakness in silver. He also added that it’s not surprising to see silver lower as gold is down about 2% for this week as prices have dropped through critical support at $1,900 an ounce.
“Where gold goes, silver follows,” he said. “Because silver is a lot more volatile than gold, it has more room to move.”
Bhar said that the precious metals market is struggling as Congress continues to “bicker” about further fiscal stimulus measures. He added that it now appears unlikely that the government will pass any major bailout packages before the November U.S. presidential and general election.
Bhar added that the lack of any new stimulus measures is impacting silver’s industrial demand, which makes up about 50% of the precious metal’s demand.
Although silver has seen a significant selloff, both Bhar and Hansen said that drop should be taken in context of its recent rally.
From late-March to early-August silver prices nearly doubled, pushing above $30.00 an ounce and its highest level since 2013.
“Silver is down but I wouldn’t be too concerned with this drop” said Bhar.
Hansen said that he remains long-term bullish on gold and expects that to support the silver market. He added that he doesn’t see the gold/silver ratio pushing much past 80 points in the near-term.
As of Wednesday, the ratio was trading at 78 points, up from its recent low at 69 points.
Bhar said that while he is more bullish on gold as uncertainty dominates financial markets, he sees potential for silver.
“I would see these low silver prices as long-term buying opportunities,” he said. “I don’t think you want to try catching a falling knife right now but maybe look at buying if prices drop to $20 an ounce.”
