Economic Factors Affecting the Silver Futures Trading Market

In Metal Futures by Leslie Burton at 7:51 am on May 28, 2011 - [edit]

Silver Futures Trading | Are Economic Factors affecting the markets?

Silver had suffered massive liquidation that was perhaps overdone! $49.845 was our high of April 25th and now less than a month later, we may have potentially bottomed at $32.30 (silver futures prices as of 5/27/11 have bounced back up over 37)! While the Silver had seemed to lead the action in the marketplace earlier, it appears the Gold may be leading now. Part of the problem was the volatility in the Silver drove the exchanges to raise the Silver Margins so high. The Silver Market needs to consolidate and flatten to bring down the margins a bit before it can really take off again. The Silver Market does move frequently with the industrial metals as the growth of the economy goes hand in hand with the price action of the Silver Market. There are times also when the Silver takes on safe-haven properties.

Economic factors that may affect the Silver Market:

GDP figures Our expectations for US economic growth come in about 3 3.5 %. The earthquake in Japan is still a factor slowing our growth as auto parts and manufacturing may be delayed as Japan rebuilds its country after the devastation. Initial Jobless Claims - Initial Jobless Claims fell 29,000 to 409,000 last week. You can view the economic calendar of events to see when these numbers come out. The US Dollar Index Often pressures the tangible markets when it strengthens. We look for a weaker US Dollar to support the Silver Market. The inverse relationship is alive and well! Fund activity The Funds have the allocations to move the market. The rallies often are determined or at least started by fund activity. Investor sentiment The forecasters are out with newsletters and trade recommendations to spur further buying/selling in the marketplace. There are typically many factors to focus on. The sentiment of the traders is vital. Jitters in the market may support Gold more than Silver now as the Gold has maintained more of the safe-haven sentiment.

The Chart The Daily Chart may lead traders to wait and see as trader mentality is attracted to the momentum of an already trending market. Silver demand The demand in the physical metals may often control the price action as traders attempt to predict the supplies and usage ratio. ETFs The ETFs in Silver have had plenty of movement both up and down as traders desire to be in a healthy move, but are reluctant to stay in during drawdowns in their investment products. Margin money Margins may have gone up for Silver itself, but also when traders are pressured in other sectors, they may liquidate metals contracts to suffice for extra margin required to hold other products. Pan American Silver is one of the largest Silver Mining Companies in the world. They boasted revenue rising 40 % to $190.5 million. The quarterly profit rose three times in quarterly profit.

While we hate to see a washout in the marketplace, occasionally they are only a reflection of the previous move. Retracements are a necessary part of the equation. After all, that is a reflection of the Fibonacci Retracements. The margins may prohibit traders from taking the futures positions, but the options may be a way to garnish the benefits of the increased volatility and define a prescribed risk for the trade.

Factors affecting silver prices

The price of silver has a long and volatile history, and every bit of it still has impact on silver prices today. From the very first discovery of silver, mankind has held it in high regard, using it for decorative purposes and as currency. The power of silver is so absolute that many languages actually use the same word to describe silver and money. Though it may currently be the most plentiful and affordable of the precious metals, trends are hinting that this will not remain the case. Understanding the history of silver prices can truly help you to better understand silver prices today. The metal held immense power until the late 1890s, but prices dropped suddenly with the discovery of several major silver strikes. These silver strikes, such as the Comstock Lode, dumped massive amounts of silver onto the markets, and the prices were quickly depressed. Silver miners that were thrilled with their large discoveries soon realized that their sudden success would actually be their downfall. To spare these mining companies from destitution, the United States government purchased up large stores of the silver, effectively stabilizing the prices. Though the futures of the mining companies were saved, silver prices did not experience much growth at all. Fast forward a bit to the 1970s, when precious metals were first offered to consumers for investment purposes. If you look at the prices for silver since it was first made available to the public, you will see that those prices have risen steadily for over three decades. This steady climb is due to several different reasons, but the largest of these reasons involve the state of the economy. Silver values never really change much, but currency values surely can.

When our dollar values drop, it takes more money to buy the same amount of silver. Supply and demand does have a large part in determining silver prices today, too. Many of the uses for silver render it useless in any other form, such as the medical creams and photographic supplies that require silver. Replenishing these stores of silver isnt as easy as it once was, because those stores of silver that the government purchased are rapidly dwindling. All of these factors together mean that silver, while still the most affordable and plentiful of precious metals, may someday actually surpass gold in desirability and price. You can take advantage of that when the time comes, but only if you buy now. By Melissa Pistilli-Exclusive to Silver Investing News Coming out of the Thanksgiving holiday weekend, precious metals prices experienced heavy drops in light of certain economic factors. Silver and gold were both under pressure from a firm dollar, falling oil prices, and grim global economic news. The silver quote tumbled as low as $9.15 Monday from its $10.26 close on Friday. Resource stocks in general experienced losses. The TSX took a dive and analysts anticipate its six-session streak of gains will hit the skids. The S&P/TSX Composite Index dropped 6.95 per cent to 8,626.36 points. Resource stocks were also on the decline in New York with mining stocks plunging 10 per cent. Dollar strength is often anathema to precious metals prices and affecting silver companies. The dollar index gained 0.4 per cent against a basket of currencies on Monday and the dollar also firmed up 0.8 per cent against the euro. Markets are anticipating a half-point rate cut from the European Central Bank later this week. European PMIs came in weaker than expected, said Dresdner Kleinwort,Consultant, Peter Fertig. So pressure on the euro increased and stock markets came under heavy selling pressure, which is another negative factor for the precious metals. The oil market is another main driver of precious metals prices. Further weakening oil prices were undermining gold and silver on Monday. Oil futures came under heavy selling pressure and fell more than 7 per cent after news that OPECs anticipated production cuts were stalled. On Saturday, OPEC leaders met in Cairo to discuss current oil prices and production cuts. Although many expected the oil cartel to announce cutbacks in output, OPEC has chosen to wait until the December 17 meeting in Algeria to make the cuts, said OPEC Secretary General Abdalla el-Badri. Alaron Energies reporter Phil Flynn has suggested that the setback is due in part to infighting amongst OPECs leaders. Cartel members are turning on each other and pointing fingers and realize that their credibility is being brought into question. OPECs failure to cut production and

even more importantly show a united front, seems to suggest that they are powerless to do anything to stop the drop in oil prices, said Flynn. Economic news out of China has also weighed on the commodities sector with renewed urgency, said senior analyst at Kitco Bullion Dealers, Jon Nadler. Information on Chinas manufacturing activity compiled by CLSA Asia-Pacific Markets reveals that November experienced the sharpest contraction in manufacturing since the survey began in 2004. The Purchasing Managers Index experienced its fourth straight monthly decline in November, falling to 40.9 from 45.2 in October. Precious metals markets will likely be further affected by economic news as more depressing U.S. economic data is due out later this week. The prime focus would be on the U.S. non-farm payrolls on Friday which is likely to fall negative for the 11th straight month and by the most since September 2001, said Pradeep Unni, senior analyst at Richcomm Global Services. Leo Grohowski, Chief Investment Officer for the Bank of New York Mellon Corp. wealth management unit, has said the economic news is going to continue to get worse before it gets better. No doubt this latest round of market uncertainty will cause short-term weakness in precious metals, however in the long-term investors will continue to seek safe haven in gold and silver assets.