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Silver Prices This Week: Sideways on Speculator Shorts By Jim Bach

Silver prices this week have been slow and steady, continuing an uneventful August during which the white metal has traded in a narrow range. However, while silver is likely to recoup from its recently slow trading in July, it most likely won't see a prolonged rally anytime soon because the big drivers simply aren't there. The post Silver Prices This Week: Sideways on Speculator Shorts appeared first on Money Morning - Only the News You Can Profit From .
silver prices this week

Silver prices this week have been slow and steady, continuing an uneventful August during which the white metal has traded in a narrow range.

As of market close yesterday, the price of New York spot silver on the COMEX was around $19.86 an ounce, down a slight 0.3% on the week. Silver futures for September delivery, the most actively traded contract month, were down just $0.03 at the close of market to $19.91.

The iShares Silver Trust (NYSE Arca: SLV), an exchange-traded fund (ETF) that holds physical silver bullion in JPMorgan Chase & Co. (NYSE: JPM) vaults in London and New York, is down $0.09 at $19.10 as of yesterday's close. The ETFS Physical Shares Trust (NYSE Arca: SIVR), a close alternative to the premier silver fund, SLV, was down $0.08 on the week to $19.61.

In early morning trading today (Friday), spot silver took a dive and traded as low as $19.45. These are lows that haven't been seen since silver bottomed out in late May moving into June, just before a six-week rally that took silver on a ride from below $19 an ounce to around $21.50.

However, while silver is likely to recoup from its recently slow trading in July, it most likely won't see a prolonged rally anytime soon because the big drivers simply aren't there.

Here's why for silver, things are going to get worse before they get better...

Speculation Holding Silver Prices Down

Silver this year has been very sensitive to the speculators. The inverse correlation has been very high in 2014, suggesting that the more short positions speculators stake out, the more silver falters.

That's why in late May, as speculators were taking out a record number of short contracts, prices traded as low as $18.76. That came at a time when silver was plunging into a three-month long bear session.

Fortunately, there is a breaking point.

After silver languished below the $19 mark, the speculators holding short contracts began liquidating their positions and buying new long positions. This steady decline in short contracts, combined with the fresh long buying, propelled silver to a silver bull run.

At the moment, though, silver doesn't have the luxury of record short interest.

In fact, short positions were at their lowest figures for 2014 at the end of July at around 12,600. This is compared to the record high of about 49,000 short positions in early June.

In the same way that silver was bolstered by a steady sell-off of short contracts from the beginning of June to mid-July, it has been hampered by the build-up thereafter.

As of the most recent reporting by the U.S. Commodity Futures Trading Commission (CFTC) , there are just about 18,100 short contracts out on silver, building up from the yearly lows from the week before.

The next round of speculator trading data on silver will be released today at 3:30 p.m. EDT, and it will give a clearer view as to whether shorts are mounting.

If they are indeed building up each week, that likely means silver will suffer for a bit, as a low volume of short interest leaves it vulnerable to this kind of activity. Once it builds up to a peak, however, silver will once again experience another bull run.

What to Look Out for in Silver Prices Next Week

Speculators aside, there are a lot of potentially market-moving events coming up next week, all of which could have an effect on silver prices.

The most important to look out for is the release of new Consumer Price Index figures by the U.S. Bureau of Labor Statistics, coming Tuesday. A sharp increase could have traders fearing inflation, which tends to be a good boost for silver prices, because as a precious metal investment it attracts investor interest as a store of value against a weakening dollar.

The last CPI figures released on July 22 showed inflation was at 0.3%, and silver traded up a slight $0.04 on the day to $20.97.

On Wednesday, the U.S. Federal Reserve will release the minutes from last month's Federal Open Market Committee (FOMC) meeting, giving a more intimate look into the Fed's expectations for interest rate increases in the coming year. If the data continues to suggest that the Fed will keep interest rates low for a prolonged period, a stimulative policy that facilitates inflation, silver could get another lift.

On Thursday, Markit will release its Purchasing Manager's Index, a gauge of business activity in the global economy. Last month, encouraging economic data out of the Eurozone included in the monthly report plunged silver $0.54 to $20.36 an ounce. If news is more pessimistic this month, it could do the opposite.

Also be looking overseas to the winding down of the Israeli-Palestinian clashes in the Gaza Strip, the struggle between Ukraine and Russia, and the activity of the militant Islamist group, the Islamic State of Iraq and al-Sham (ISIS) in northern Iraq, as foreign policy tensions are often felt in the precious metal markets.

Silver may be in a trading slump at the moment, but don't be discouraged. There are some indicators to suggest that in the coming months, silver is readying for a bull run. Here are the three reasons why now is a good time to jump in on the coming silver bull...

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The post Silver Prices This Week: Sideways on Speculator Shorts appeared first on Money Morning - Only the News You Can Profit From.

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