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Silver on the Edge: Major Move Soon?
U.S. Sanctions against Russia Threaten Dollar, Bolster Palladium
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Welcome to Money Metals Exchange's weekly market wrap podcast. Helping precious metals investors during these treacherous times. Now, here's this week's market wrap with commentary and analysis from the fastest growing precious metals dealer in America, Money Metals Exchange.
Welcome to this week's Market Wrap Podcast, I'm Mike Gleason.
The moment of truth for silver prices may be at hand – at least as far as the intermediate-term outlook is concerned. Silver's retreat over the past few days has brought prices back to test a major shelf of support extending back 10 months to the 2013 low, which came in just below $19 an ounce.
So far the silver market is holding up. Earlier in the week, prices looked like they might be ready to take a major plunge and slice right through support levels. But by mid week, the market settled down. Silver spot prices closed Thursday at $19.66 an ounce, about 30 cents above the low point for the week but down about 1.5% for the week overall. Global precious metals markets are now closed through Easter Sunday.
The technical setup for silver shows prices continuing to consolidate within a large wedge pattern. What this means is that prices are winding up for a big directional move. If silver finds support off the levels touched this week and begins to rally, we'll be watching to see if prices can gather momentum for an upside breakout. On the other hand, a significant breach of this week's lows would be cause for concern. And a breakdown below the 2013 bottom could trigger a spate of sell orders and a sharp sell-off to lower zones of support, perhaps dollars lower.
The other precious metals aren't as perilously close to suffering major breakdowns, but they each joined silver in moving to the downside this week. Metals prices struggled against a rising U.S. Dollar Index and rallying stock market. Gold spot prices currently come in at $1,296 per troy ounce, down nearly 2% this week. Rounding out the precious metals complex, platinum is down 3.5% to $1,414 an ounce, while palladium is off 1% on the week and now quotes at $800 per ounce.
Volatility is likely to pick up as the silver market either breaks down and leads precious metals lower or breaks out and leads a spring rally. We believe the best way for investors to cope with volatility is through incremental buying rather than going all in at once. That's one of the reasons why we developed a Monthly Savings program. It takes the hassle and worry out of deciding when to buy.
Now may be a tempting time for contrarians to buy as many silver ounces as they can near the bottom of a trading channel. From a long-term perspective, now almost certainly will prove to be a favorable time to load the boat. But there's always a risk that highly leveraged futures markets can temporarily push prices lower than seems sensible or even conceivable.
So if, for example, you want to invest $10,000 in physical silver, you might put $5,000 to work now and the other $5,000 a few weeks later – or after the market has experienced a significant break one way or the other. You may end up committing the second $5,000 at higher prices or lower prices. But you'll avoid the risk of putting it all in right before a takedown on the futures exchange.
The biggest risk? Well, that may be the risk of not getting into the precious metals market at all. In any market – whether it's silver or stocks or real estate – the best bargains tend to come when the charts look the scariest and sentiment is most negative. We're near that point of maximum pessimism on silver, if we haven't already seen it. And while we can't rule out one more liquidation phase ahead, prices that slip below mining costs will lead to more shuttering of mines and less supply going forward. In other words, lower prices are possible but probably not sustainable.
Domestic silver mining production has been on the decline since June of last year, according to the U.S. Geological Survey. Year over year, it's looking down by about 14%, to 33 million ounces per year. That's potentially not even enough on an annual basis to keep the U.S. Mint supplied with enough silver to produce its popular Silver Eagles. Without higher silver prices to incentivize more production, we're looking at the possibility of real physical shortages.
At the moment, though, most of our silver bullion products remain available at low premiums and with non-existent lead times. Market-dictated premiums on American Eagles and pre-1965 90% silver coins are somewhat elevated. As is usually the case, our lowest-cost gold and silver products are bullion bars and our privately minted rounds. And as always, our friendly and knowledgeable specialists here at Money Metals can help you identify the bullion products that best fit your budget and needs. You can also visit our new and improved website, to browse all of our items, view up the minute pricing or place an order 24 hours a day, 7 days a week at www.MoneyMetals.com.
Before we close out this week's podcast, I want to update you on the growing crisis in Ukraine.
As you know, the United States has already targeted Russia with certain sanctions and financial restrictions. It looks like more sanctions are coming soon, but they could ultimately have serious ramifications for the dollar.
Obama officials in Washington met privately with financial industry insiders this week to give them a heads up that the U.S. may soon attack specific sectors of the Russian economy and potentially threaten Russia's ability to freely transact in the dollar. Money managers are now selling Russian assets left and right.
In response, Russia has stepped up efforts to negotiate bilateral trade deals with countries using the ruble, gold, or flat out swaps of goods. America's actions could have the unintended consequence of triggering Russia's exit from the dollar-based payments system which underpins the dollar's status as the global reserve currency.
And then there's palladium. The threat of sanctions against Russia could restrict the supply of Russian-mined palladium, which currently accounts for 40% of the world's production. This unfolding crisis is one of the reasons palladium prices have been rising sharply in recent months, and those customers who followed our suggestion of acquiring palladium bars and coins over the past year are awfully happy they did so.
Geopolitical events can have a dramatic effect on the dollar and the precious metals market, and owning hard assets is a prudent way of hedging yourself against a wide variety of bad outcomes.
Well that will do it for this week's market wrap podcast, thanks for listening. This has been Mike Gleason with Money Metals Exchange reminding you that we remain fully committed to getting you the most value for depreciating dollar… with speed, with accuracy, and with top notch service. Have a great Easter weekend everybody.
Thank you for joining us for this edition of the Money Metals Exchange Weekly Market Wrap. Be sure to come back next week, and don't forget to subscribe to our weekly podcast through iTunes. For answers to all of your questions, or to discretely and securely buy or sell gold or silver coins, bars, and rounds, call 1-800-800-1865. Our knowledgeable and no-pressure specialists are standing by between 7:00 a.m. and 5:30 p.m. mountain time, Monday through Friday. Visit us at www.MoneyMetals.com or call 1-800-800-1865.