Jan 30, 2012 08:30 PM EST – The rally in silver prices peaked at $33.99 per ounce in the New York afternoon session on Friday. On Sunday evening, silver gave back a dollar before prices reversed early in the morning and continued rising into the COMEX session. Prices never managed to recapture Friday’s range with March Silver closing COMEX today at $33.527 per ounce, down $0.262 or 0.78%. Spot silver finished New York electronic trading at $33.50, down $0.49 per ounce.
We may be told that concerns over Europe and the inability to gain any traction on a Greek debt deal are responsible for under performance in commodities and equities today. Further, specifically on the silver front, supply constraints are loosening with reports of higher production. Yet we saw a lift later in the day, and that can be attributed to reports of increasing demand for silver coins.
Frankly, it is possible for any news organization attempting to summarize silver price movements on a daily basis to point to a whole host of datapoints that are either bullish or bearish and then attribute daily price swings to that data. It is a silly exercise really. After last week’s explosive rally on the heels of a dovish Fed statement, it is possible that silver prices simply need to consolidate gains for a bit. Some traders are going to book some profits. Can the rally continue from here? There is certainly a lot of strength behind it and the fundamental reasoning behind the rally is sound. Nevertheless, if trading silver short-term, we couldn’t fault one for taking a little off the table.
If holding silver for fundamental long-term reasons with expectations of various $60 to $100 per ounce predictions to be realized, it’s best not to get cute with your position. We may begin to see a shift in silver coverage as prices continue to march higher, which can trigger more of those big moves we saw in last year’s rise to nearly $50. Consider this article from Bloomberg Businessweek: Silver Powering 20 Million Homes as Glut Subsides. That is the kind of coverage we like to see because it helps a given asset class reach its full potential, if not bubble territory. We aren’t there yet.
On the Sprott Physical Silver (PSLV) vs. SLV front, we have further validation that drop to a 5% premium last week was indeed a gift. That historically small premium was a great opportunity to gain upside momentum and downside protection on the silver trade. Last week during the rally, we saw PSLV’s price rising faster off that premium bottom. Today, PSLV was up 0.6% while SLV was down 1.3% with the price of silver itself. The premium over NAV for PSLV now sits 9.15%, which means we have seen an incremental 4% upside relative to silver prices in general.