Silver price retreats 1%

After slumping more than 1.5 percent on Tuesday, silver price moved mostly sideways yesterday to finish the day almost unchanged at $19.03 a troy ounce. However, the precious metal slid more than one percent today to $18.823 but had recovered slightly to $18.870 as of 11:09 BST. Silver is poised to complete a third consecutive monthly loss.

The move down comes as global risk appetite has increased on improving economic conditions in the US, which bring ever closer the prospect of interest-rate hikes that make silver less attractive to investors as a zero-yielding asset.

In light of a thawing in relations between Russia and Ukraine, market participants are reassessing the benefits of holding safe-haven assets like silver amid rising equity markets.

There are other factors to be considered that suggest silver may have entered oversold territory and could be poised for a rebound. Michael Lewis, global head of commodities research for Deutsche Bank AG said on May 20 in Singapore that silver’s weakness is exaggerated because of its correlation with gold prices. Although silver has shed 2.3 percent of its value since the beginning of 2014, gold has managed to climb 5 percent throughout the same period.

However, historical data points to a strong correlation between the two metals, where silver typically follows the price of gold. A key measure of this correlation – the gold-to-silver ratio, which stands for the number of ounces of silver required to buy an ounce of gold – has widened from 62 at the start of 2014 to almost 67, suggesting that silver might erase some of its losses.

Various other fundamental factors also point to the possibility that the silver price might be overdue a rally.

While global silver supplies have been declining since 2010, tumbling nine percent to 978 million ounces at the end of 2013, global demand has climbed 13 percent to reach an all-time high of 1,081 million ounces last year, according to a May 14 study by the silver-producers-financed Silver Institute.

Coeur Mining Inc. has put a large silver mine project in Argentina on hold and could do the same for an open-pit gold and silver mine in Mexico as it seeks to reduce spending and retain capital.

Coeur intends to become cash-flow positive between the second half of the year and 2015 after its cost-reduction programme and as prices recover. The company’s shares softened 4.1 percent to $6.83 in New York yesterday, its lowest price since March 18, 2009. The stock is down 37 percent this year.

Andrew Kaip, senior mining analyst with BMO Capital Markets, told the Wall Street Journal, says,

With silver prices hovering around the $20 range a lot of these companies have had to react very quickly to reduce costs or mine higher grades at their operations to try to bring their operations back to profitability. We have also seen a deferral of some development projects.