Silver price treads water ahead of EU, US data

Spot silver hardly moved yesterday, shedding three cents per troy ounce to close at $18.777. Traders are biding their time ahead of two key economic events: today’s European Central Bank (ECB) meeting and tomorrow’s US data on employment.

Technical indicators suggest silver might be poised for a rebound. The price is more than 7.5 percent below its 200-day simple moving average, while its 14-day relative-strength index at 32.50 is much lower than the neutral level of 50.

Some technical analysts see a dip below the 30 level as an indication that an instrument has become oversold, and that a reversal is likely.

As investors closed their positions in silver last year, on expectations the Fed was going to start tapering its asset purchasing programme, its price plummeted by 36 percent – the largest annual drop since 1981.

The lower prices attracted physical demand, raising total demand by 13 percent in 2013, even as purchases for investment declined by 42 percent. Silver is widely used in manufacturing and around half of its stocks find industrial applications.

Industry’s appetite for silver has, however, failed to prop up its value, as the metal has given up more than 3.5 percent in the year-to-date.
“The industrial driver can help, but I don’t think it’s as influential as the investor,” Robin Bhar, head of metals research at Societe Generale SA in London told Bloomberg. Bhar is the most-accurate forecaster tracked by the news agency through May 2.

An appreciating US dollar, predicated on an improving US economy, has been one of the underlying factors for silver’s recent weakness. Rising equity markets have also contributed to the migration away from precious metals.

The S&P 500 index, for example, has set multiple records in the last few weeks as recent improvements in the Ukrainian crisis has upped traders’ risk-appetite.

The US dollar index – a basket of six major currencies weighted against the greenback, advanced to a two-month high this week. The ECB is expected to reduce its refinancing rate by around 10 to 15 basis points today, and to also become the first central bank to bring deposit rates below zero, in an effort to stimulate the region’s economy after data showed inflation tumbled to record lows in May.

The 18-nation bloc saw its GDP grow by 0.2 percent in the quarter ended March, down from a revised 0.3 percent gain in the previous three months, according to Eurostat yesterday. If taken, such measures are likely to cause the euro to depreciate against the dollar, weighing down on safe-haven assets. However, many analysts believe the markets have already factored in such a move by the ECB, according to Forbes.

Ukraine’s President-elect Petro Poroshenko has promised to present a peace plan to resolve the crisis in the eastern part of his country. After his meeting with US President Barak Obama on Wednesday, Poroshenko told reporters that “from the very beginning, from the very day of the inauguration, we are ready to present a plan for the peaceful resolution of the situation in the east.”

Although the specifics of his plan were unclear, the President hinted he was going to seek western support at an upcoming G7 meeting in Belgium, and through meetings during tomorrow’s commemoration of D-Day in France. “I think it will be very symbolic if precisely here in Normandy we can start to work out a process for peace in Ukraine.”

The majority of those on the precious metals panel at the Canadian Investor Conference, held from June 1 to 2 in Vancouver, advised investors to purchase holdings in silver as they concluded the metal was undervalued and was currently selling for bargain prices, according to Silver Investing News.

“As far as I’m concerned, silver is the most undervalued of all the precious metals,” Ed Steer of GATA and Casey Research said, according to the news outlet.