The global silver market was pretty shaken up in 2011 when silver bullion prices dropped from a high $49 to $32 and then again from $43 to $28. Investors around the world have been reacting differently to the price upheavals which triggered the most paranoia in October 2011. However, about 50% of investors have turned the fall into an opportunity and are aggressively buying the lower-priced silver. Considering the uncertain financial future, the decision to hold silver bullion instead of fiat currency certainly appears to be a wise one.
Silver prices are expected to remain volatile in 2012 as well. Analysts expect the market to mirror last year’s performance with sharp rises and falls and in fact, Barclays Capital has predicted that silver will be the most unpredictable of the precious metals. Although price predictions vary from $32/oz to $52/oz, the consensus seems to be in the mid-$30s. Analysts have also pointed out that traditional supply and demand rules are unlikely to drive prices. Instead, the only factors that would affect the silver market are market sentiment and investor behaviour.
For example, China’s mega-sized demand for silver is well-known, but given that the country’s trade deficit has been at its highest in more than two decades, fears of a slowdown are high. A weak Chinese economy means a lower silver demand.
Egon von Greyerz, founder and managing partner at Matterhorn Asset Management, said that silver was not for the faint hearted this year. His advice to investors, “My view is people should hold more gold than silver, but from a profit potential point of view, silver looks very much like it’s going to have a bigger move.” He said that while silver corrected more easily than gold, the correction seen in February is rather mild. He believes that when silver turns, it will run positive very quickly.
Speaking about gold, he said that there is a major demand for physical gold that is growing rapidly. He is confident that institutional money will enter the gold market aggressively and transform the market. During an interview last week, he said, “We are seeing the low this week or we could be under pressure for another week. But thereafter, in April, if I look at the technical picture, gold looks fantastic. The next move will be a major move in both gold and silver.”
He said that the paper market is artificially manipulated and is not relevant to the physical gold market in the long-term. However, physical gold is what people should invest in now and protect themselves from the volatile 2012 markets. He added “The institutional investors are going to go heavily into gold and that will totally change the market. As we know there isn’t enough physical gold around to satisfy an increase in demand, so that can only be satisfied by a higher price.”
Also speaking about gold, Caesar Bryan of Gabelli & Company said, “Well, there’s been a bit of a transfer from the paper players, those involved on the COMEX and in the futures market who have been liquidating. On the other hand, the physical buyers, including central banks, are stepping in to accumulate gold.” He added, “The central banks have been accumulating a great deal of physical gold at these lower levels. So there’s a bit of a tug of war going on between the futures market and the physical market.”
Among other opinions, Anne-Laure Tremblay, precious-metals strategist with BNP Paribas said, “Beyond the short term, we remain positive on gold’s outlook as the fundamentals are still solid.” The bank stated, “An improving macroeconomic outlook and high risk appetite should see silver outperform gold for most of H2’12 and 2013 although silver, like gold, remains vulnerable to waves of liquidation. As a result, the gold/silver ratio should decline to the low 40s by H2’13.”
BNP Paribas had forecast gold and silver prices in February and they stand by those predictions in March as well. The bank expects gold to sell at $1,850/oz in 2012 and $2,225/oz in 2013. Silver is expected to sell at $37.50 in 2012 and at $51 in 2013.
By Anthony David
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