Silver Bounces Higher After 13-Month Consolidation

on May 31, 2012

Since the peak of almost $50 per ounce in April 2011 investors in silver have had tough times, as prices have been on a steady downward trend. Finally, after the multi-month consolidation, the white metal climbed higher showing a brighter lookout for future market conditions.

The recent silver rebound was tracked by most silver stocks and price indicators. The gold to silver ratio has been approaching strong resistance at the 59:1 level, where during times of apathy in the metals market the ratio rises as silver drops faster than gold. iShares Silver Trust (ETF) (SLV) currently has strong long-term support around the $26 level. Sprott Physical Silver Trust (PSLV) premiums are at 5.32 per cent, where the low premiums are indicative of a major bottom being formed. The exchange-traded fund (ETF), Global X Silver Miners ETF (SIL) is back to where it was in late 2010. After falling 50 per cent from the peak in 2011, Nick Laird’s Silver Sentiment Index has also retraced back to its 2010 levels and is now positioned for the next big move up.

On the other hand, Europe’s financial troubles continue to weigh on the silver market, as they caused the US Dollar to grow stronger against the Euro making trades in other currencies more expensive, thus reducing demand for precious metals. Last week the US Dollar Index has increased dramatically, climbing to as high as 83.02 as the Euro sank below $1.24, representing its lowest level since mid-2010. But the US Dollar rally is overextended, and likely to resume its downward trend once Europe settles on a temporary solution for Greece.

!m[](/uploads/story/63/thumbs/pic_1_inline.png)Despite the upturn in the value of the Dollar silver prices bounced higher and the long-term consolidation appears to be about over. The recent increase in silver prices has already had a positive effect on silver production. The miners lead the physical metal and are showing signs that they may continue to outperform. Recently there have been reports of both major and minor producers projecting increased output of silver. For instance, Volcan, one of the largest silver miners in Peru, has recently announced expectations to produce an extra 1.5 million ounces this year. What is more, CPM Group’s Silver Yearbook 2012, released last week, says silver supply may surpass 1 billion ounces for the first time this year.

Investors may recall that analysts were generally positive about silver’s performance this year, with many suggesting that 2012 could mark the moment in time when the metal reached or surpassed $50 per ounce. Actually, of the 25 analyst forecasts reported by the London Bullion Market Association (LBMA), $28 was the highest of the low prices projected for this year. Mitsui and Company analyst David Jollie, for example, predicted that silver could drop as low as $19.20 but still expected the metal to average $30.95. Notwithstanding the positive forecasts, it must also be remembered that analysts did not suggest that it would be a smooth ride in any particular direction. Still, the shaky outlook for silver investment demand and economic turmoil is becoming more stable and encouraging for silver investors.


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