After silver and its companion metal gold slumped to multi-year lows yesterday, some tentative buying has taken place today. Bargain hunting from devoted fans of the white metal is undoubtedly partially the reason behind the move, but given the speed of the drop seen in recent months it is a brave person that will suggest they have seen the end just yet.
It is probably safe to say that not since the late 1970s/early 1980s have we seen such moves in silver. Then, it was a result of an attempt by two speculators to corner the entire silver market. Now investors are reacting in dramatic fashion to the idea that liquidity will no longer slosh around the global financial system like water in an over-filled bath. As a result much of the money that flowed into silver ETFs is now looking for new homes, meaning that liquidations have become the order of the day. The selling that began earlier this year may go on for a while yet.
However, there is reason to think more positively about silver, given that the supply picture looks better. Physical demand, as opposed to interest in funds, remains strong, boosted by the relative scarcity of investment grade silver versus its industrial counterpart, which is often produced as a by-product of other mining processes. Indeed, the largest seven silver miners have seen production ebb consistently over the past eight years, which has at least acted as a support for silver prices in difficult times.
For now, $20 remains the barrier that needs to be broken if silver really is to push much higher from here. However, the strength of this downtrend means that we are inevitably casting our eyes towards the $17 - $18 per ounce area, not seen since the summer of 2010.