Early-week silver market action likely provided some encouragement for a lot of silver bulls. The metal not only outperformed gold on a number of occasions, but also managed to break through and close above the lingering $28 resistance level. On Monday, the metal’s New York closing price was $28.18 and Tuesday brought a close of $28. But those who missed the action may well doubt that those events ever occurred since by mid-week the market had weakened again.
This week was data-heavy, but market participants were mostly concerned with central bank meetings.
The anticipated two-day Federal Open Market Committee (FOMC) meeting did not produce any change. The Fed again noted that economic activity has decelerated, employment growth has slowed, and inflation has declined. As in the past, it expressed a commitment to monitor conditions and provide additional accommodation if needed. There was no move toward QE3 or to extend the low interest rate policy beyond 2012.
But there was also no major loss of hope for Fed action as many market participants believe more monetary stimulus could be announced in September.
On Wednesday, the closing day of the FOMC meeting, silver’s trading range was nearly $1. At one point silver was $28 and a few pennies, but it closed down $0.56 to end at $27.44. It is perhaps surprising that the steepest declines occurred ahead of the news from the Fed.
Silver prices took a major dive early in the US session. The cause of this drop is not completely clear, but speculators believe that it could be due to a number of factors, including action by alleged market manipulator JP Morgan, suspicions that easing would not be forthcoming, or spillover weakness from other falling commodities such as base metals and grains. In any case, silver was trying to recover some ground when the news came from the FOMC meeting. The announcement applied another bout of downward pressure, but silver put up better resistance than gold and closed mid-range.
On Thursday, the focus was on a European Central Bank (ECB) meeting. Last week, ECB president Mario Draghi committed to doing whatever is necessary to save the euro. That announcement provided support for silver and gold. It also spurred expectations that Draghi would announce fresh stimulus measures during the press conference after the meeting. This hope paved the way for a second central bank disappointment since he failed to do so. But as with expectations of QE3, many believe the ECB is likely to make a positive announcement regarding stimulus in the near future.
With this week’s central bank meetings out of the way, on Friday the markets will be focused on the US jobs report. Non-farm payroll jobs are expected to rise by about 110,000.
There still seems to be a division of sentiment between silver futures and silver ETF investors. The latest Commodity Futures Trading Commission report shows that 275.8 tonnes were added to speculative shorts, boosting those positions to 3,477.2 tonnes, a 12-month record. Though the addition of 44.3 tonnes of silver to ETFs was less than a third of what was seen in the previous week, holdings of 18,535.5 tonnes brought ETFs to the year’s highest level.
September silver on the COMEX trading floor closed near the session low, last down about $0.56 at $26.97. The closing New York spot price was $27.14, down $0.30.
Silver mining stocks were a mixed lot throughout the trading day.
Junior company news
Teras Resources (TSXV:TRA) announced that it now owns 80 acres of private land at its Cahuilla gold-silver project in California. The company may use the land to process ore when mining operations at the site begin. Drill results for the Cahuilla project will be reported in the near future.
Vancouver-based Hana Mining (TSXV:HMG) reported that the latest drill results from the Banana Zone at its copper-silver project in Botswana indicate that the site contains high-grade mineralization of both metals. Core length intercepts include 3.63% copper equivalent (3.12% Cu and 35.0 g/t Ag) over 5.8 meters within a wider mineralized interval of 1.81% copper equivalent (1.58% Cu and 16.0 g/t Ag) over 14.3 meters in hole HA-526-D.
Securities Disclosure: I, Michelle Smith, hold shares of JP Morgan.