What Could Bring Down Silver?

 |  Includes: SLV, SLW
by: Lior Cohen


The price of silver dropped last week, which also dragged down silver ETFs such as iShares Silver Trust (SLV).

The U.S non-farm payroll report could impact the silver market.

The progress of the U.S dollar against the euro may affect silver.

The price of silver tumbled down during last week. As a result, silver fell below $19 for the first time in nearly a year. This week, the non-farm payroll report and the ECB rate decision could stir up the precious metals market. Let's examine how the upcoming news items may impact the silver market.

The price of silver declined by 3.6% during last week. Moreover, several silver related investments also decreased last week: iShares Silver Trust (NYSEARCA:SLV) and Silver Wheaton (NYSE:SLW) fell by 3.1% and 3.6%, respectively. Looking forward, the progress of the U.S economy, and the direction of the U.S dollar could be among the factors affecting the price of silver. Let's start with the upcoming non-farm payroll report.

U.S labor market and silver

On Friday, the U.S non-farm payroll report will be published. In the last report, 288,000 jobs were added during April, which was higher than anticipated. The table below presents the changes in the price of silver, USD/yen and the growth in jobs.

Source: Bloomberg and U.S Bureau of Labor Statistics

In the past couple of reports, which showed a high increase in jobs, the price of silver rallied. Nonetheless, in the past, a high gain in number of jobs used to have a negative impact on silver. Moreover, the linear correlation between the changes in employment and price of silver is -0.17, which is a mid-weak and negative relation (before the last two reports, this relation was much stronger at -0.38). But my guess is that over time the negative relation will hold up. Therefore, if the U.S employment continues to expand at such a fast pace, this could have a negative effect on the price of silver.

Silver and U.S dollar

During May, the U.S dollar appreciated against the Euro but fell against the yen and Canadian dollar. In the past, the euro/USD tended to have a strong correlation with the daily percent changes of silver, as indicated in the chart below.

Source: Bloomberg

The chart above shows the moving (30 days) linear correlation between silver and euro/USD. In the past several weeks, the correlation was weak. This finding suggests the developments in the forex market didn't have a strong effect on the silver market. This week, the ECB will decide on its interest rate. Some analysts estimate Mario Draghi may act and bring the deposit rate to below zero (negative rate). This move could have a negative effect on the euro/USD pair. In such a case, this news might have a modest negative impact on the price of silver. Even though silver isn't currently strongly correlated to the euro/USD, a change in monetary policy could stir up not only the forex market but also other related markets such as bullion - at least for a short period.


This week's U.S non-farm payroll report is likely to be the main release to influence silver investors. If the U.S labor market continues to grow, this could further drag down the price of silver. Finally, if Draghi decides to change ECB's current monetary policy, this decision could play a secondary role in the silver market. For more: Will This Silver Company Rally?

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.