The week opened with the silver price increasing by 70 cents, but investors sold the metal to lock in profits. This continued the pattern of silver failing to hold onto gains, since last October. The result was that prices ended lower for the fifth week in a row
With current global economic fundamentals, silver should be appreciating. The most intense burst of monetary stimulus the world has seen from the Bank of Japan, improving growth in China and the US, and nuclear threats from North Korea, among others reasons, have seen investors buy when the price weakens.
However, seemingly not enough investors have confidence that the global economy will continue to grow, and every improvement in the silver price is overwhelmed by sellers, explained Max Knudsen, Chief market Strategist at ADS Securities
Silver is approaching an important long term low. With silver not responding to positive fundamentals, the weight of new sellers could force a more permanent move through US$27.00. Since its all time high in 2011, silver has recorded six losing quarters and an average quarterly price fall of 15 per cent. So far this quarter silver is down five per cent.
What to do?
“I favour the use of options to benefit from a serious failure in the silver market and significant break below US$27.00. A three month US$24.50 silver put option for 5000 oz costs US$2,200. If silver trades down to US$23.00 an oz this option could increase in value by more than three times,” said Knudsen.
This does not constitute investment advice.