Silver has the potential to be one of the best performing assets over the next five years.
Much of what applies to gold also applies to silver. And, as I have mentioned in previous articles, silver is also a monetary metal whose price is influenced by similar factors that influence the gold price.
Invariably, the price of silver mirrors that of gold and more often than not, its moves are greater in percentage terms than the moves in gold. So if the price of gold moves 1% silver can be expected to move between 2%-6%. With the price of silver being so undervalued at the moment, the percentage moves we can expect to see in the future are going to be quite spectacular.
According to World Silver Survey2010 released in May by The Silver Institute, silver has continued to make gains as the European sovereign debt crises continues. “Silver’s status as a precious metal was unequivocally reaffirmed last year by investors who purchased it not only as a speculative commodity-play on economic recovery but also as a safe haven asset, particularly at a time when the global
financial crisis was raging,” the Survey noted.
The report also stated that much of 2009’s strength in investment can be attributed to soaring demand for silver exchange traded funds (ETFs) as well as physical retail investment. This occurred on the heels of 2008’s previous record ETF inflow of 265.3 million ounces of silver. Total ETF holdings rose by 132.5 million ounces over the course of 2009, ending the year at 397.8 million ounces as new funds entered the marketplace from Australia and the United States.
Coins and medals fabrication rose by 21 percent to post a new record of 78.7 million ounces, driven by a jump in retail demand principally in the United States, although western European demand was also stronger in 2009. In the United States, the increase in bullion coin sales was also accompanied by a surge in bar demand. Demand for the US Silver Eagle bullion coin reached record highs in 2009, with over 28 million Eagles sold. Over the 1986-2008 period, US Eagle minting averaged 7.7 million ounces annually. This year sales of the one ounce silver coins have already reached 22,092,000. If sales continue at the current pace, sales may even hit 40 million ounces for the year which is equivalent to the total annual US production of silver.
Since April this year, with the exception of two false breaks to the upside, whenever the price of silver has hit $18.50, which has been seven times, it has then been sold down to around $17.50/oz. All this action has taken place on Comex, and since there has not been any change in the fundamentals, particularly on the supply side, it is obvious that this range has been a pure speculative play by the bullion banks. However, if the CFTC do what they say they are going to do, then these banks will soon find it difficult to use their “phony” exemptions, which will put a stop to the their huge short positions. When this price suppression stops I believe that we will see the price of silver make a decisive break above $18.50/oz and a rapid move to $21/oz. Thereafter, it should challenge the $25/oz level. It is also my firm belief that silver is going to be one of best performing assets during the next five years. With silver currently testing the $18.50/oz for the eighth time now, since April, the next few days are going to be interesting.
The trading range between $17.50 and $18.50 is very clear. The price of silver has managed to remain above the long-term 200 day MA, and it now looks set to break through the medium-term 50 day MA. I believe that we will see this shortly and then we will see a break through the key resistance of $18.50
About the author
David Levenstein is a leading expert on investing in precious metals .He brings over 30 years experience in futures, equities, forex and bullion.
For more information go to: www.lakeshoretrading.co.za
Information contained herein has been obtained from sources believed to be reliable, but there is no guarantee as to completeness or accuracy. Any opinions expressed herein are statements of our judgment as of this date and are subject to change without notice.