Posted: 18 Aug 2014 12:43 PM PDT

Silver Price Forecast this Week: Silver speculators are mounting their short positions, meaning that silver prices are likely to continue to struggle in the near term.

But investors who hold silver through this short-term weakness are soon to be rewarded for their patience.

As it stands, speculators have out about 21,600 short contracts on the white metal representing 108 million ounces of physical silver, a 19.2% increase from the week before, according to data from the U.S. Commodity Futures Trading Commission. It's also a 71.2% increase from two weeks ago when short contracts were at their lowest levels on the year.

This means that silver is currently in a cycle of growing short positions, which suggests that at least for a little while, silver investors are going to have to absorb some losses before there are any advances.

Also working against silver in the last week is that there was no rise in the number of speculators going long, providing no support for price growth in the face of increasing shorts.

But this is going to reverse itself in due time...

How Speculation Fits In to the Silver Price Forecast

Typically, silver - like gold - will move on negative economic conditions.

Recently, turmoil across the globe in places like the Gaza Strip, or on the Ukrainian-Russian border, has to some extent provided a safe haven for investors looking to move away from the dollar and equities this year.

But macroeconomic events alone are a difficult indicator of silver price movements, as the small size of the silver market creates high levels of volatility. So while a spike in investor interest can help silver make quick dramatic advances, it can also just as quickly have its gains erased when investors pull back.

A good recent example of this was last month, over concerns of the Portuguese banking sector. Silver soared when Portugal's second-largest lender, Banco Espírito Santo SA, revealed on July 10 that its retail clients were holding the commercial paper of its parent company, a company that had just two days earlier announced that it was going to miss payments on those debt obligations. Panic ensued and silver jumped 1.5% on the day and peaked at three-month highs of $21.47 an ounce.

But over the following weekend, it became clear to markets that those events were fairly isolated, and that only the Portuguese bank was going to suffer, not the Eurozone as a whole. Silver investors pulled back. On Monday, silver saw a 2.5% decline, erasing the previous week's gains.

Speculation, however, has been a fairly consistent silver price predictor in 2014.

So far this year, silver prices have had a correlation of -0.86 with speculator short positions, bets on silver prices falling. Statisticians will generally look for a correlation of between -0.7 and -1 to determine whether there is a strong inverse correlation between two variables.

With inverse correlation as solid as it is, this suggests that as short positions grow, silver prices will fall. And on the other end, when shorts reach a peak, silver prices reach a low and are poised to gain.

"When there are few shorts, that leaves the price vulnerable to renewed short selling," managing partner at CPM Group, Jeffrey Christian, wrote in an email to Money Morning. "So, too, when there are a lot of longs, that leaves the price vulnerable to profit-taking selling by the longs."

So far, there have been two periods of silver shorts moving to peaks that were followed by a period of short contract liquidation and coinciding silver rallies.

The first was in early February, when short contracts totaled close to 34,000. In the period of liquidation to follow, silver gained 12.3% in just two weeks.

The second peak was reached after a three-month bear session, where shorts mounted from mid-February to early June, when they hit record highs at around 49,000 contracts. The short contract sell-off period to follow was protracted, lasting from early June to late July, and delivered gains of 9.3% just before the shorts began to grow again.

Right now short contracts are still well below their peaks on the year. With short contracts at about 21,600, there is still room for that total number of contracts to grow, and for silver to continue to fall before a peak is reached.

But with silver speculation in 2014 providing a pretty clear picture of where silver prices are headed, the more this number grows, the bigger the gains and the longer the rally after that peak is reached.

More on profiting from today's market volatility: Economic skirmishes like the situation in Russia can quickly escalate into all-out trade wars, where even the victors lose. But you don't have to be another victim.Here's how you can understand, and profit from, this surging European volatility...

How the Fed Has Moved Silver Prices in 2014 | The Wall Street ...

Posted: 21 Aug 2014 11:29 AM PDT

This is a syndicated repost courtesy of Money Morning. To view original, click here.

For all the discussions of inflation and labor market conditions going on at the U.S. Federal Reserve's policy meetings this year, it would be expected that the Fed's words would be felt in silver prices in 2014.

Fed has had marginal effect on silver prices in 2014 Silver is a precious metal investment like gold, and when fears of inflation arise it attracts investor interest as an alternative investment to hedge against a weakening dollar. Gold is the premier precious metal, but when traders begin to pour into gold, silver will get residual investor interest.

And it will generally move more dramatically than gold, because trade volume is significantly smaller for silver than its sister metal.

"The silver market is tiny compared to the gold market," Richard Checkan, president and chief operating officer of Asset Strategies International told Money Morning. "It's like throwing a rock into a lake versus a puddle; the relative splash is much bigger in the puddle."

Silver's price moves this year highlight its volatility. It has gained as much as almost 5% in a single day, and lost as much as 3%.

With the Fed this year continually echoing the refrain that interest rates will remain low for a "considerable" period, the ground would seem fertile enough for huge gains in silver, given that a long period of accommodative monetary policy, such as a low interest rate environment, is more conducive to inflation.

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But this year, that hasn't been the case…

Silver's Moves on FOMC Days

For being as volatile an asset as silver is, on days where the Fed occupies headlines – either through its Federal Open Market Committee (FOMC) meetings or the meeting minutes release that occurs three weeks later – the white metal has generally moved only very marginally.

Just check out the following chart of silver price moves on Fed news days…

As the chart shows, on average, FOMC events will push silver prices down 0.3%, or about $0.07. While there are more times the metal's price has climbed instead of slipped around the time of a Fed event, the losses have been bigger than the gains.

Silver prices saw their biggest price decline that can be attributed to Fed guidance on Feb. 19, the day that the central bank released minutes from its meeting in January. Prices dropped $0.425 an ounce, or 1.9%.

This was a sizable one-day drop, and was the tenth-largest decline on the year.

The release of the January meeting's minutes on Feb. 19 was significant in that it was the first time that the FOMC acknowledged that the 6.5% unemployment rate threshold guidance – which dictated that this unemployment figure was a signal that interest rates ought to rise from their near-zero level – should be revised. This was because the unemployment rate was at 6.6%, and the Fed was not willing to tighten monetary policy so quickly.

But the more likely culprit in silver's decline, if anything from the FOMC minutes, was the fact that instead of toeing the same line on a prolonged period of low interest rates, "a few participants raised the possibility that it might be appropriate to increase the federal funds rate relatively soon," according to the minutes. The prospect of an accelerated increase in interest rates would work to dampen inflation fears, and prompt investors to flee from silver.

The biggest single-day gain for silver on an FOMC-driven news day came on Jan. 29, the date of an actual FOMC meeting. Prices rose $0.15, or about 0.8%.

Compared to silver's biggest increases on the year, this was relatively small, and was the 34th-largest one-day gain in 2014. To put this in perspective, on silver's biggest day this year, Feb. 14, it jumped about 5% and gained $1.02.

The meeting of that day was pretty uneventful, and was only notable in that it was the last for former Fed Chairman Ben Bernanke.

Another noteworthy increase in silver came after the FOMC meeting on June 18. It was current Fed Chairwoman Janet Yellen's third meeting at the helm, and it came three months after she slipped up in a press conference and, knowingly or not, made a statement that seemed to indicate interest rates would spike quicker than expected. On that day in March, markets shook at the prospects of an accelerated rate hike.

But in June, when asked about the interest rate increases in a post-FOMC meeting press conference, she stayed mute, and continued to play by the Fed script of articulating a low-rate policy for a long time.

Her reticence on interest rates helped push silver up $0.14, and more importantly, helped sustain an unexpected silver rally where silver gained as much as 14.3%.

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The post How the Fed Has Moved Silver Prices in 2014 appeared first on Money Morning – Only the News You Can Profit From.

Silver Prices Will Remain Rangebound | Seeking Alpha

Posted: 20 Aug 2014 09:47 AM PDT

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Silver prices | Silver Price Forecast This Week: Downside Speculation Mounting

Silver prices | <b>Silver Price</b> Forecast This Week: Downside Speculation Mounting

How Speculation Fits In to the Silver Price Forecast

Silver's Moves on FOMC Days

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