Silver Price Rally Short-Lived After Weak NFP, Analysts Bearish on ETF, China "Overhang"

Silver price drops US jobs data jump as analysts point to "overhang" of investment and Chinese stockpiles...

SILVER PRICE gains of 1.5% on Friday after weaker-than-expected US jobs data in the monthly Non-Farm Payrolls report were quickly reversed as the weekend began, fading further in Asia overnight Monday.

March's NFP report from the Department of Labor came in with 192,000 jobs added to US payrolls. Average analyst expectations were for 200,000 and some were looking for as high as 275,000.

The overall unemployment rate remained at 6.7%, while most analysts were looking for an improvement to 6.6%.

The silver price traded as high as $20.23 per ounce following Friday's news, as Dollar-based assets fell and money switched into markets such as silver, gold and emerging markets.

But Friday's closing silver price was back below $20 per ounce, with May silver futures – the most actively traded silver contract on the Comex – settling at $19.946 per ounce, some 16¢ above the low of the day but well below the $20.23 reached after the release of the NFP news.

Silver prices benchmarked by the London bullion market's daily Fix ended the week at $19.93 per ounce, some 10¢ higher than Thursday before and 22¢ higher than the week before.

"The risk is for more downside in the silver price near-term," write technical analysts at Swiss bank and London bullion market makers UBS, "with no major support until 18.84.

"A break below this would open the way to test 18.23, the June 2013 low."

Longer-term, the silver price downside is worse reckon French bank Natixis's analysts Nic Brown and Bernard Dahdah.

Calling for $15 an ounce in 2015, Natixis believe there exists an overhang of silver investment holdings in exchange-traded trust fund products (ETFs). Because "since the beginning of the financial crisis, investment demand has grown to 25% of total demand for silver," but the typical level is only 8%.

"Were this to fall back to historical levels," Natixis says, "it would leave a major gap that industrial demand is unlikely to be able to fill."

As of Friday's data, silver ETFs now hold almost 19,800 tonnes of silver bullion bars – equivalent to a little over 80% of 2012 world silver mine production according to the Silver Institute.

"China's silver inventory levels [also] remain high," says Walter de Wet of South Africa's Standard Bank, "possibly up to 15 months' worth of fabrication demand."

The US Mint last week reported sales of their Silver Eagle coin for March at 5,354,000 – some 166 tonnes and an increase of 60% over the same month last year.

Total 2014-to-date Silver Eagle sales are now 432 tonnes, a very slight decline of 2.4% from the first 3 months of 2013.