Commodities Watch: Silver May Have Bottomed, The Devil's Metal Lives On (SLV, SIVR, PSLV, ZSL, SIL, SLW, PAAS)

Today’s commodities watch focuses exclusively on silver, The Devil’s Metal. It appears that the gray metal may have hit a floor although the exact level of that floor is arguable. The price of silver dropped -30% since its hit a high around $49/ounce in April. The low point was $33.49 in mid-May, and the devil’s metal has since recovered to around $38 today. That implies a floor of about $34/ounce, although one analyst puts the bottom at $32.

We looked at a dead cat bounce for silver earlier this month and want to re-visit the notion now that silver is recovering a bit.  Here’s a look at iShares Silver Trust (NYSE: SLV), ETFS Physical Silver Shares (NYSE: SIVR), Sprott Physical Silver Trust ET (NYSE: PSLV), ProShares UltraShort Silver (NYSE: ZSL), Global X Silver Miners ETF (NYSE: SIL), Silver Wheaton Corporation (NYSE: SLW), and Pan American Silver Corporation (NASDAQ: PAAS).

iShares Silver Trust (NYSE: SLV) closed at a mid-May low of $32.85 and is trading at around mid-day today at $36.90, up about 1% from yesterday’s close. The trust posted a high of $48.35 in late April. Since May 20th the fund has shed about 7 million ounces of silver (about 211 metric tons), but its position did not change yesterday. That could signal a turnaround to more buying going forward.

ETFS Physical Silver Shares (NYSE: SIVR), another physical holder of silver, posted a recent low of $33.48 in mid-May and is trading at about $37.52 today, up nearly 1% from yesterday’s close. The fund posted a high in late April of $49.28.

Sprott Physical Silver Trust ET (NYSE: PSLV), a closed-end fund, peaked at $23/share before falling to a low of $15.19. The fund is trading at $17.59 today, up about 1.3% from yesterday’s close, and within a 52-week range of $9.75-$23.00.

ProShares UltraShort Silver (NYSE: ZSL), a double-short play, trades inversely to the price of silver. Shares hit a peak of $24.34 on May 5th, up from around $13.60 in late April. Shares are trading down about -2% today, at $16.80, within a 52-week range of $12.83-$155.04. This one is not for the faint of heart because quick moves are not uncommon.

Global X Silver Miners ETF (NYSE: SIL) posted a recent low of $23.22 in mid-May, but has recovered to about $25.28 today, up more than 1.5% from yesterday’s close. Miners don’t experience the same swings as do physical holders of silver or the metal itself. But the miners’ shares do react rising costs, ore quality, and expected production quantities.

Silver Wheaton Corporation (NYSE: SLW), one of the largest silver miners, posted a recent low of $33.75 in mid-May. The shares are trading at $36.51, up about 1% from yesterday, within a 52-week range of $17.64-$47.60. Another big miner, Pan American Silver Corporation (NASDAQ: PAAS), posted a recent low of $32.11 in mid-May as well, and shares are trading at $34.05 today, up about 1% from yesterday’s close. The stock’s 52-week range is $22.21-$$3.06 and Zacks just gave it another #1 rating (Strong Buy) as a value stock on weakness.

Comex silver has gained about 11% since hitting bottom. Physical bullion holders SLV and SIVR have matched that. PSLV is up about 13% and ZSL is up about 17%. The miners have clawed back about 11% as well.

The $34/ounce floor looks pretty safe and the $32 floor even safer. But there are things to watch out for.

Foremost is demand from investors, which is perhaps the most direct driver of silver pricing today. As the poor man’s gold, investment demand will continue to rise as gold prices rise.  A related possibility is that industrial demand for silver, which accounts for about half of the metal’s demand, will drop. This is not likely, given the supply-demand projections for the year, but one never knows. There’s also a chance that we’ll see a dollar comeback. If the dollar rises too much against the euro, it is possible that safe haven silver investors will pull out.

One last thing to watch for is margin increases by the silver exchanges.  Any margin requirements could rapidly change any prior opinions or technicals of a market as small as silver.  There’s no question that the quick rises in margins at the beginning of May had an impact on silver investors’ decisions.

Silver may recently have established a new trading range from the low $30s to around $50. Historically the top remains in place for a while as the devil’s metal shakes off a sudden drop.

As far as silver itself and where it stands for traders, all you have to do is look at the stockcharts.com chart on the iShares Silver Trust (NYSE: SLV).  It has an overhang at the 50-day moving average above, yet it never came close to the more critical 200-day moving average when the free fall was seen earlier in May.

Paul Ausick