Futures traders are wondering what is up with silver prices this week, which slid down below $18 per-ounce, the lowest prices since late June, 2016 - right after the June 23rd Brexit vote.
Analysts are calling it the largest one- and two-day price decline in silver since January 2015.
Silver futures for November and December of 2016, and January and February, 2017, are in decline this week, hovering between $17.70 and $17.90. Traders are seeing especially high volume in December contracts, as COMEX silver settlements slid 98 cents (minus 5.2%), to $17.885 per ounce.
Silver ETFs also took it on the chin this week, with the benchmark iShares Silver Trust (SLV) falling 5%, and the Global X Silver Miners plummeting 9.1% - its worst one-day performance since November 2014.
Lack of demand has become a key issue as silver prices waned after a strong start to 2016.
According to Thomson Reuters GFMS, U.S.-based retail sales volumes for gold and silver bars declined up to 50% in the third quarter of 2016. Another reason - both gold and silver, which don't pay interest rates to investors, are adversely impacted when central banks start floating trial balloons about rising higher interest rates, as the Federal Reserve is doing these days.
Precious metals experts contacted by TheStreet.com say the decline should be temporary, with the Fed's rate hike saber-rattling not convincing investors that anything will happen until December, 2016.
"Silver prices at the end of the year should be in the $22.00 dollar range," says Charles Thorngren, chief executive officer at Noble Gold Investments, in Pasadena, Calif. Thorngren says that with the Fed's constant misdirection on rates, the markets are left without any defining catalyst for strong sustained increases. "With that said, the Fed has no choice but to maintain their current vocal policy of increases, while actually doing nothing because of the election," he offers. "The Fed will not be drawn into the political battle now raging in the public's eyes, as well as behind the scenes in Washington."
Another major factor is the negative interest rate trend in Europe.
"Although it sounds like a scary Halloween story, negative rates are a real event and a force of strength for metals worldwide," Thorngren states. "The pressure this will put on metals is significant, and it should really provide movement of metals in the spring of 2017.
Thorngren also believes that silver would be at $22.00 or above already, if not for a "very strong move" earlier this year. "This has created a profit taking scenario for many investors," he says. "When you combine this with the 'deer in the headlights' reaction, we are having with our political quagmire, it's the main reason silver is currently in the sub-$20 range."
Others don't see it that way.
Futures and commodity investors should expect heightened volatility with silver, and other precious metals, in the fourth quarter of 2016, according to Joseph Yaffe, owner of Gainesville Coins in Gainesville, Fla. "Everyone will be paying attention to the expected interest rate hike from the Federal Reserve in December," he says. "Tightening monetary policy -- i.e., higher interest rates -- typically lifts the U.S. dollar, which hurts precious metal prices. In other words, the dollar and silver share a strong inverse correlation."
Before the move by the Fed in December, Yaffe warns of investor "uncertainty" swirling around the presidential election. "Silver should get a modest boost as a safe haven in the weeks leading up to November 8," he adds. "Traditionally, gold and silver experience stronger demand when markets are anxious or uncertain due to their stability as financial assets."
The other main factor influencing silver prices during the fourth quarter is industrial demand, Yaffe notes.
"Silver is a key component in many emerging technologies, such as solar panels and new electronics," he explains. "If the global economy falters over the next three months -- for example, a sharp growth slowdown in China, or deflation and instability in Europe, we will likely see silver prices slide back without the buoying effect of this industrial demand. Look for silver to return to about $19.00-per-ounce between now and the election, and then fall back to the $17.00-to18.00 range thereafter - with plenty of volatile action along the way."
Others say that positive performance in early 2016 may have led to new silver investors taking profits towards the end of the year.
"Exposure to silver in investment portfolios has been relatively low historically and some may have seen the lower spot prices for silver at the start of the year as a potential entry point," states Andrew Chanin, CEO of PureFunds, which runs the PureFunds ISE Junior Silver ETF (SILJ) . "Going forward, though, negative interest rates may be making a zero yielding asset such as silver attractive, and volatility of currencies may result in investors and central banks looking for new asset exposures such as silver."