Readers of this website have been advised on numerous occasions that the silver market is highly volatile and should only be played with the utmost caution.
In the main, the silver price follows the price of gold and not infrequently, the move in percentage terms is two or three times greater than the yellow metal. This has been evident in the action during 2011. In late April it reached over $49 an oz. only to suffer a precipitous fall to $33 before mid May.
After scrambling back to around $43 in August it took yet another nose dive to as low as $26 before meandering back to between $30 – $34 for a couple of months and then again dropping to $26 at the end of the year. That double bottom signalled a turn around and a steady but uneventful climb back to the $32-33 level.
Much of the early action was a result of margin calls being increased so denting investors confidence in the longer term. Now the latest utterances from Ben Bernanke has set the silver price on course to climb to a two month high to close this week at $34 an oz.
Silver In The Spotlight
As the printing presses are being primed to roll out yet more dollars ready for QE3 and zero interest rates are here to stay until late 2014, once again precious metals, principally gold and silver are in the spotlight as preservers of wealth in anticipation of the inflation to come.
Because the silver market is so much smaller than that of gold we can expect the rises, and the corrections, to continue to outpace the yellow metal.
Silver to Hit $60 Before Year End
Technically silver is moving into overbought territory but that is not yet a concern. To continue its upward momentum it needs to put $34 behind early next week. If it does then the next resistance level is $35.50-36.00.
While it may take a while to clear this level, $50-$60 an oz is a realistic year end target. It should be remembered that silver, along with gold, are only about half way through a long term bull run that started over six years ago.
Demand For Silver Remains At a High Level
The fundamental issues remain much as they were during 2011 although we can argue that, if any thing, they have become even more bullish for the precious metals sector with the latest utterances from Ben Bernanke and the Fed being the icing on the cake.
Let us not forget the effect that raising the margin requirements had on the futures market at the time when silver was correcting, that really hurt the longs and gave their confidence a kick in the pants. The futures market, which has a huge impact on the spot price, was put out of kilter to the detriment of the spot price.
During all this the demand for physical silver, bullion and coin remained at a high level from both investors and industry, it was the retail investor, speculators and fund managers that steered clear.
Record Silver Imports Into China
While the spot price was hurting, the US Mint reported that September saw the second highest sales of silver coin ever, China imported over seven and a half million tons of silver in the same month while forward contracts on the Shanghai Exchange were six times higher than a year earlier.
Silver Manipulators Face Enquiries and Lawsuits
To compound the apparent disparity between price and demand during 2011 was the issue of manipulation. We have mentioned on previous occasions how manipulating the silver market effects the price of gold because of the close links between the two.
Playing down the price of silver is much easier than making the attempt on gold for two main reasons, the price is much less and the market much smaller but the effect undermines the gold price, the metal politicians and bankers love to hate.
- Is it then a surprise that two major banks facing lawsuits for silver manipulation and a US Commodity Futures Trading Commission investigation into the same question have yet to reach any results?
Silver Supply and Demand Will Overcome the US Waning Influence
As economic power devolves from the US and other developed countries to the BRICs and other emerging powers so commodity markets become progressively less influenced by actions of the US in particular. This waning influence is becoming more and more apparent in the precious metals sector with gold and silver in the lead roles.
That the market will overcome all the attempts to artificially influence the price of silver we have no doubt, supply and demand will be the ultimate determining factors. With that in mind we can only see silver making a series of higher highs over the space of the next twelve months, and quite probably a good deal longer.