Will Silver Break Free From Its Current Price Range?

| About: iShares Silver (SLV)


Silver inched down last week.

Other silver investments such as Pan American Silver (PAAS) and Silver Wheaton(SLW) rallied last week.

Next week’s release of the minutes of the FOMC meeting could pull up silver.

The silver market cooled down in the past couple of weeks as the price of silver remained at $21. But this month, the minutes of the last FOMC meeting and the next meeting could stir up the bullion market.

During last week, the price of silver remained unchanged. Despite this lack of movement some silver investments such Silver Wheaton (NYSE:SLW) and Pan American Silver (NASDAQ:PAAS) have done well last week. These companies' stocks rose by 2.5% and 2.7%, respectively. Conversely, other silver related assets didn't do much last week: iShares Silver Trust (NYSEARCA:SLV) inched down by 0.6%.

U.S labor market continues to improve

Last week's U.S non-farm payroll report showed a 288,000 gain in number of jobs during June, which was slightly above market expectations. As you can see in the table below, the recent payroll report seems to have contributed to the recent fall in the price of silver.

Source: Bloomberg and U.S Bureau of Labor Statistics

Looking forward, the FOMC will release the minutes of the last meeting this week (July 9th). And later this month (July 29-30) the FOMC will convene again (this time without a press conference). The minutes could stir up the market if it reveals any additional insight behind the future steps the FOMC will take.

After all, the last time the silver market heated up was back in June following the FOMC meeting, as presented in the chart below.

Source: CME's website

The chart above shows the changes in the volume of trade of silver futures in the past several months. The highest volume of trade was back during the days after the FOMC meeting was concluded. If the minutes reveal that most of the members of the FOMC consider a rate hike isn't appropriate any time soon, this might be enough to push further up the price of silver.

Silver and U.S dollar

In the past several days the U.S dollar appreciated against the Euro after it had declined during June. Despite the recent depreciation of the U.S dollar it doesn't seem to impact the silver market due to the low correlation between the daily changes in the price of silver and Euro/USD.

Source: Bloomberg

Therefore, even if the USD continues to recover, it doesn't mean it will bring down the price of silver.

Silver in India

In the meantime, the demand for silver is coming down in India: Silver imports fell to 3.79 MT - well below the amount of silver imported during June last year. The drop in imports may have partly been due to the recent recovery in gold imports during last month. This rally in demand for gold is because of the new government's relaxed tax tariffs, and the decision of the Reserve Bank of India to provide partial relief on gold imports. Silver is considered a partial substitute to gold, so the recent policy changes may have led to rise in demand for gold and drop in silver. If this trend persists, it could bring further down the demand for silver in India, among the leading countries in importing silver. But even so, this turn of events will have a modest (at best) negative effect on the price of silver.

Final note

Despite the recent developments in Asia, the FOMC's policy is likely to play a significant role in determining the direction of silver in the near term. Nonetheless, my guess is that silver isn't likely to break free from its current price range anytime soon.

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

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Tagged: , , Alternative Investing, Silver
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