Tuesday morning saw spot silver take a nosedive, stumbling below the $15/oz mark for the first time in over a week after swiftly dropping by more than 30 cents. After plunging toward $14.50 in late July, the silver price had been hovering around $14.90 per ounce before surging above $15.30/oz at the end of last week's rally for the precious metals. Spot silver has now wiped out these gains, and again sits near $14.90/oz at 11 am EST on Tuesday.
Indicators from India
The most plausible explanation for the plunge in silver prices is a wave of profit-taking by traders. As the chart above shows, the silver price spiked about 5.5% from the beginning of August. The profit-taking explanation is also bolstered by the fact that the silver price has stabilized almost exactly above its levels prior to the steepest run-up, from Monday through Friday of last week. The $14.90 level where silver finally saw support this afternoon is right in line with its price on last Monday's open.
India's Economic Times reported that silver futures were falling dramatically in rupees on Tuesday, as the per-kilo price of silver sank $9.50 lower, translating to a per-ounce drop of about 30.5¢. This nearly perfectly matches the price movement in the West, which stands to reason—India is the world's largest consumer of silver this year, importing more of the white metal in the three previous quarters beginning with Q4 2014 than it had in entire years past.
Silver Stocks React
The losses for silver naturally sent reverberations through funds and shares tied to the precious metal. First Majestic Silver (NYSE: AG; TSX: FR) continued to weaken with fairly high volumes, indicating that selling is accelerating. The company's stock was down 20% during the calendar year before Tuesday. Following the sharp decline in spot prices, shares of First Majestic sank another 4% on Tuesday.
The bad news also battered Pan American Silver (NASDAQ: PAAS; TSX: PAA) almost 2% lower, exacerbating an underwhelming earnings report from the company. Pan American posted a net loss during the second quarter, though—like many primary gold miners—the company managed to cut its cost per ounce of silver while increasing production. With output trending toward the more efficient and more productive, the only thing that's truly holding down Pan American has been the weakness in the silver price.
While silver prices are generally more volatile than their other precious metal counterparts (thanks to the high volume of trading in the metal and the ease of access for consumers thanks to affordable price levels), there are still investors and silver stackers who snap up more silver bullion each time the price falls, essentially lowering the average per-dollar cost of each ounce of silver they buy.
This is especially prevalent when the clear sign for a price dip is merely the behavior of traders scooping up profits after a sustained rally for metal prices. When price movements are due to market behavior, it's a pretty safe bet that such price action can't be taken as a sign of some fundamental trend going forward. Though it is inherently risky to try and profit off of intraday movements in the markets, you can use such action to add more silver to your portfolio at depressed prices.