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Is Silver Positioning for Further Weakness?

Posted on 2012-11-05, By A-Best Staff
By Michelle Smith — Exclusive to Silver Investing News

Is Silver Positioning for Further Weakness?

Lower margin requirements for COMEX silver contracts went into effect this week, but the decrease hasn’t been the spark that the market needs. Silver appears in need of something much more solid and encouraging to improve market sentiment. And, there are some suggestions that the market may even be positioning for further weakness.

Last week, North American markets showed their disappointment in the weaker than expected Chinese GDP figure, which came in at 8.1 percent. There are some suggestions that this data could be positive for silver as the market may begin to expect easing measures from China. If these expectations are prevalent, they did not help the market on Friday. Disappointment not only weighed on silver prices, but also snapped a two-day TSX rally.

Focus on Spain

Though it was not as much of a concern in North America, on Friday, weak silver prices on the other side of the globe were connected to reports of record borrowing by Spanish banks. As concerns grow about the debt situation in that nation, Spain’s auctions are expected to be a focal point for the global silver market.

Tuesday’s T-bill auction was considered positively received. Though rates rose, they were not considered to be at dangerous levels; demand was good, but this wasn’t seen as the most important indicator. The market wanted to see what would come out of Thursday’s bond auction.

The bond auction was considered satisfactory, but the nation was not able to contain rising rates.

In the midst of these auctions, the market reacted negatively to news that Spain had a large increase in its number of non-performing loans. Given the nation’s unemployment rate, this is an issue that may worsen.

Overall concern about Spain’s condition continues to plague the market, especially against the backdrop of macroeconomic uncertainty.

Market positioning for weakness?

Earlier in the week, the Indian silver market received a boost that was largely attributed to physical demand in connection with inventories being stocked for the wedding season. There are also suggestions that some demand is a result of Akshaya Tritiya festivities next week, which some are hoping will provide further support.

However, silver for May and July delivery on the Multi Commodity Exchange of India slid Thursday. Analysts continue to report that the weakness seen in India is largely the result of the market taking cues from international trends, which includes being concerned about Europe’s economic situation. This could be bad news as some believe the broader market is preparing for an extended period of weakness.

The silver market has not been showing significant interest in the supply story lately. The concern has been mostly macroeconomic, and thus demand. But, it may be time to broaden the scope and take note of accounts of rising production.

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