Silver Market Update – Week Ending August 3, 2012

Facebook Twitter

Fed and ECB Both Disappoint Markets At Their Much Anticipated Meetings, CME Boosts Silver Prices When it Cut Margin Requirements for Silver Futures, U.S. Economy Adds More Jobs Than Expected, But the Unemployment Rate Still Rises.

Fed and ECB Both Disappoint Markets At Their Much Anticipated Meetings, CME Boosts Silver Prices When it Cut Margin Requirements for Silver Futures, U.S. Economy Adds More Jobs Than Expected, But the Unemployment Rate Still Rises.In last week’s update, you read how silver prices had been supported and boosted by the market’s conviction that both the Federal Reserve and the European Central Bank were imminent to act at meetings they held this past week that ended August 3rd.

You could infer from what you read that if one or both of the central banks did not print more money to ease their respective economies, then silver prices might not hold up so well this week. For the first four days of the week, as both central banks let down the markets, it appeared that silver prices would finish the week significantly lower.

Yet there were several other events that intervened in the markets by the end of the week to help silver finish week ending August 3rd at about where it started the week, right about the $27.80 it finished the week before.

Fed and ECB Both Disappoint Markets At Their Much Anticipated Meetings

You have to understand that the two central banks only disappointed the markets in a manner of speaking. Both the Fed and the ECB did make vague promises about quantitative easing, and insinuated that they would print more money to buy bonds. With various key phrases they both hinted that they would likely do something in the future.

The problem is that neither of them had any specific plans to share with the markets or offered any timeframes for when they might debase their currencies still more. Markets had been convinced that at least the ECB would roll out a new and substantial monetary stimulus plan. By the end of Thursday’s ECB press conference let down, silver had already dropped over fifty cents to under $26.98 per ounce. This setback put silver down over eighty cents for the week. It looked grim for silver after having just ended its first week up in almost a month.

Still, the press conferences were not a total loss for silver investors and enthusiasts. The two central banks did indicate that there will be monetary stimulus in the future. When either or both of them do turn on the money printing machines, inflation will rear its ugly head. This is still a bullish case for silver. The market’s belief that the central banks will act in the near future helped to cushion the silver losses by the end of the week.

CME Boosts Silver Prices When it Cut Margin Requirements for Silver Futures

Help for silver came from an unlikely quarter just before the end of the week on late Thursday and early Friday. The Chicago Mercantile Exchange, or CME, decided to drop the margins that you have to maintain in order to trade silver futures on the COMEX exchange by 10.7%. Instead of having to put up $18,900 to hold one silver futures contract, you will be able to do it with only $16,875.

Effective Monday, August 6, this makes it substantially easier to bid up silver prices as you can now control larger silver positions for speculation in this exchange with less money. In the past when the CME has raised these silver margins instead of lowering them, it has conversely crushed silver prices.

It helps to explain why silver prices rebounded so dramatically on Friday by the New York close, back up the $27.80 where they started the week. This put silver up by nearly two and a half percent on a single day to break point for the weekend.

U.S. Economy Adds More Jobs Than Expected, But the Unemployment Rate Still Rises

The other major economic event of the week proved to be the jobs report that the government released Friday. This impacted silver positively in two ways. On the one hand, the key headline read that the economy created 163,000 new jobs, which was more than the hundred thousand jobs that the consensus of economists expected.

This argument that the economy is picking up is good for silver as an industrial use metal. At the same time and despite the new jobs added, the jobless rate rose a tenth of a percent to 8.3%, which makes the case that the Fed will have to engage in more stimulus before long. This argument bids up silver as a hedge against inflation. Either way you view the report, it was good for silver prices.

Take Away On Silver Market Prices

For this past week, you have to keep in mind that the so called smart money and financial media had become convinced that either the Fed, or the ECB, or both, were sure to act decisively this same week. Silver was well bid to the initial resistance of $27.78 as it started the week on this assumption.

The fact that these two most important central banks have only put off their stimulus actions and not disavowed them helped silver prices to find a base once market players had time to digest the results of these important meetings.

All things considered though, there is hardly a better way to boost the price of silver, or any bullish commodity for that matter, than to reduce the margin required for you to speculate on it.

In the past, the CME and COMEX have been called an enemy of silver and gold as they mercilessly raised margins to trade them multiple times within only weeks and months. This week they instead rode to the rescue of silver prices when they cut the margins by over ten percent.

Facebook Twitter