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(Kitco News) - The silver market has given up nearly half its gains made earlier this month as the precious metal sees no benefits from improving economic activity in the U.S. that is helping to ease recession fears.
Silver prices have managed to hold support above $24.25 an ounce; however, the precious metal is looking to end the week in negative territory. September silver futures last traded at $24.430 an ounce, down 1.7% from last Friday's close.
Meanwhile, prices are down 4% after hitting a 10-week high last week. Some analysts note that silver continues to be tied at the hip with gold as upbeat economic data has provided little momentum to silver as an important industrial metal.
Roughly half of global silver demand comes from industrial applications.
Silver significantly underperformed gold Thursday, dropping nearly 3% during the session, despite U.S. Gross Domestic Product showing the economy grew 2% in the second quarter, beating expectations.
Analysts also note that renewed strength in the U.S. dollar is also weighing on silver prices ahead of the weekend. The greenback saw a strong move against the euro Thursday after European Central Bank President Christine Lagarde struck a more dovish-than-expected tone after raising European interest rates by 25 basis points.
Markets expected Lagarde to signal more rate hikes as the central bank tries to bring down inflation. However, she said the ECB will keep its options open and be data-dependent.
"We might hike interest rates, or we might hold, and what we decide in September is not definitive," Lagarde said in her press conference.
John LaForge, head of real asset strategy for Wells Fargo Investment Institute, said that silver's reaction to the U.S. dollar shows that silver's fortunes remain tied to gold. He added that despite robust industrial demand, investors are not ready to see silver as an industrial metal.
However, LaForge added that he expects investor interest to grow with the dwindling supply of silver and increasing demand.
"Gold and silver have two of the best-looking supply growth charts of any commodity, meaning there's no growth; there's no growth in supply, so should not take much in demand to impact prices," he said.
Despite silver's disappointing performance this week, some analysts continue to see potential for the precious metal. Michele Schneider, director of trading education and research at MarketGauge, said that silver future lies in its role as an inflation hedge more than as an industrial metal.
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"If silver holds around 23.90-24.00 on this dip, it looks like a fresh buy signal. The stronger dollar after the ECB and FED rate hikes hurt it a little, and the overall feeling that inflation has peaked," she said. "However, with oil pushing $80 a barrel and the dollar possibly breaking down on a monthly closing basis if it fails below 102.15, the "inflation is over" folks could be surprised by a new round of higher prices.
Gary Wagner, Editor of TheGoldForecast.com, noted that silver continues to outperform gold.
"It is still technically stronger than gold because current pricing is above both the 100 and 50-day moving averages; this takes current support to the 100-day moving average at $23.80 as the key and critical price to watch," he said.
