Slipping silver prices might appear to signal an end to the bull market for the precious metal, but it bears remembering that bumpy as it seems, it is not uncharted territory.
Spot silver traded at about $29 an ounce on Friday, rounding out a week of consecutive trading losses and a nearly three-month downward trend that started at the end of February, the same time as a corresponding fall in gold prices.
Along with other factors, that was when China, the engine of global commodity markets for nearly a decade, cut its economic growth targets and put an end to a two-month joy ride for the metals, prompting a selloff that deepened amid more bad news about the global economy.
“We’ve seen this massive risk-off selling and silver has been hit harder than most,” said Philip Klapwijk, executive chairman of global precious metals consultancy GFMS Ltd. in London. “New money is not coming in the way it was before, and I think prices were ripe for a correction.”
Prices suffered further as political events in Greece, France and Spain clouded European debt woes yet again.
Silver mining stocks are trading near their low points for the year these days, so cheap that some experts say it could be a good time to invest, although most would caution shares could fall further before they rise.
“I’m not seeing a lot of appetite for silver stocks,” said Adrian Day, who runs a boutique asset-management firm under his own name that caters mostly to retail investors. “I think a lot of this is just overall concern about everything and people looking for liquidity.”
On the Toronto Stock Exchange, where the materials index is down 21 per cent over the past three months, the fallout is obvious.
Among the silver stocks are companies such as Silver Wheaton Corp., highly sensitive to the silver price and trading at around $26 on Friday; that was well below high points for the year of $36.69, touched when silver prices hit their peak in the year-to-date.
Vancouver-based Pan American Silver, which has mines from Mexico to Argentina, has had an equally bumpy stock performance, starting the year at about $20 a share before rising to $26 in February, and falling to about $17 a share on Friday.
Of note is the fact that stock prices for silver companies are roughly in line with where they started the year – just like the spot price of silver.
“I don’t think anybody would expect we are heading back to the teens for the silver price just yet,” said Mr. Klapwijk.
Investors are seeking liquidity, just in case the European debt crisis deepens. But the same forces driving investors away from silver and silver stocks, and gold and gold stocks, could pull them back to the sector if global economic uncertainty and market volatility prevail and they seek a haven in precious metals.