Silver price little changed ahead of first LSP auction

Despite gaining six cents a troy ounce yesterday, the price of silver futures still closed below its 100-day simple moving average (SMA). Analysts note that silver trading has been conducted within a four-cent range so far today. Whether it finishes the week in the red or green is largely dependent on today’s trading, as the $5 trillion markets prepare for the first setting of the London Silver Price (LSP) – the new benchmark price-fixing mechanism – shortly after 13:00 BST.

On the New York Mercantile Exchange (NYMEX), silver futures for September settlement were down less than three cents to $19.88 an ounce as of 07:16 BST. They gained 0.3 percent yesterday to settle at $19.90, below their 50-day, 100-day and 200-day SMAs. The contract has lost 0.3 percent so far this week and, should it finish lower, it would mark its fifth-consecutive weekly loss and its longest losing streak since the six weeks ended April 19, 2013. The white metal has shed 2.6 percent in August, but has gained 2.5 percent in the year-to-date.

Based on front-month contracts, the gold:silver ratio was unchanged at 66, after losing close to 0.4 percent yesterday. It currently stands 3.3 percent above its 200-day SMA at 63.8, which has today moved above the ratio’s 50-day SMA at 63.75. The event is known as a ‘death cross,’ and is interpreted as a bearish sign by some technical analysts.

The ICE U.S. Dollar Index was little changed at 81.59 as of 07:52 BST, and is set to finish the week higher. Should that happen, it would represent a fifth-consecutive weekly advance, its longest rally since the five weeks ended February 8, 2013.

Economic data yesterday revealed growth in the eurozone stalled in Q2, while US unemployment insurance weekly claims increased by more than estimated last week. Japan’s Cabinet Office revealed on Wednesday the country’s GDP contracted by an annualised 6.8 percent in the second quarter, and by 1.7 percent on a quarterly basis. There was also an unexpected drop in Chinese loans. The data spurred speculation global policy makers will take measures to support growth, and will be in no rush to raise borrowing costs.

“Silver manifests itself as a precious metal in times of crisis or uncertainty. When it's business as usual, silver acts more like a base metal and trades more on supply and demand numbers. Silver prices will respond during a crisis as its perception changes from an industrial to precious metal,” Sean Rakhimov, editor of SilverStrategies.com, told the Gold Report on July 16.

The 117-year old London silver price fix was set for the last time yesterday at 13:00 BST. It put the price of one troy ounce of silver at $19.86. Today’s unveiling of its replacement – the LSP – is hoped to address persistent concerns about the credibility and transparency of the silver market.

David Govett, head of precious metals at brokerage firm Marex Spectron, told the Wall Street Journal: "The overall impression I get from this is that everyone is a little unsure of how it's all going to work—just because it's something new […] The bullion market is quite a staid market, shall we say, and a lot of the people in it, especially the traders, have been around for a long old time."

Reuters described the new mechanism as “not only electronic, auction-based and auditable; [but] also tradable with an increased number of direct participants.” The Chicago Mercantile Exchange (CME) Group will provide the platform and algorithm on which the price will be calculated, while Reuters will play an administrative role. The London Bullion Market Association (LBMA) owns the intellectual property rights and will accredit price participants.

Rhona O'Connell, head of Metals at Thomson Reuters GFMS, told Money Morning in an email that the initial members of the new ‘fix’ are largely from the banking sector, but there are hopes "that may expand into industry as time goes on."