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Silver Market Alert!

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December 13, 2011 - 9:15pm

Short-term:expect the silver price to move up to $49 before giving new direction. More importantly, there has been a critical fundamental change in the shape of silver demand that has changed the long-term prospects for silver.

 

Having moved up to $50 previously on the back of major banks hurriedly closing their short positions, the silver price has spent time since then consolidating, as you see in the chart to the right. The move up to $40 is not simply silver following gold, but an indication of a major structural change in the size and shape of demand for silver.

 

Industrial Demand

 

Industrial demand for silver is moving from a dependence on photographic demand to demand from the electronics and medical industries. These industries are less silver price-sensitive than photography or other discretionary demand. This implies that industrial demand will remain healthy despite silver price rising to $100 plus.

 

Investment Demand

 

 

vEmerging Market Investment Demand

 

Because the gold price has risen to new heights, many investors in the emerging world have turned from investing in gold to investing in silver. With the prospect of gold rising considerably higher –put another way, prices of currencies are likely to fall considerably further in terms of gold and silver—the switch from gold to silver by emerging world investors will gather in momentum and volume.

 

A problem with the presentation of demand figures on silver is that the description of jewelry demand is often a misnomer as it is true of gold demand figures. In the emerging world, demand for silver and gold, whether in jewelry form or in bar and coin form, is driven by the search for financial security. Jewelry demand could then be treated as investment demand in the bulk of cases.

 

Investment demand from the emerging world for silver will grow in line with the emergence of the middle classes in those countries. Demand for silver will reach further down to the lower end of the middle classes because of its continuing affordability, relative to gold.

 

In China, three years ago, it was selling its ‘official’ reserves of silver and was an exporter of silver of up to 3,500 tonnes. Today, it is an importer of similar and rising amounts. In both India and China, around 7% of income is being channeled into precious metal investments. Around 40% of income is saved. With inflation visible in the emerging world, the tendency in the future will be to increase the proportion of savings channeled into precious metals. Therefore we forecast that demand for silver from the entire emerging world is set to rise considerably.

 

vDeveloped World Investment Demand

 

The developed world investment demand for silver is completely different to that of the emerging world. It is driven by a profit-seeking motive with little expectation of financial security being provided by precious metals.Investment demand has been largely confined to the Silver Trust Exchange Traded Fund shares. Around 20% of those holdings has been sold in the recent consolidation period when silver dropped from $50 to the mid-$30’s.

 

The balance of those holdings has been held for years now. We forecast that these holders will continue to do so more as financial security than for a dollar profit.

 

The bulk of silver investment demand emanates from North America, not Europe. We forecast that the demand for silver in North America will increasingly be for financial security rather than for dollar profits. In addition, we forecast that such demand will increasingly come from Europe and for the same reasons.

 

While silver has been the ‘cheaper’ of the precious metals and at times barely reaching that category, the decay of currencies and the rising price of silver has enhanced silver both as a precious metal and a wealth-preserver. It is becoming a ‘counter-to-currencies’ more and more. Both the changed perception of silver in the developed world and the demand from the emerging world, will change the nature of the silver price in the weeks, months and years to come. As it becomes more of a source of financial security and a counter to declining currency values, globally, so the perception of it as a monetary asset will grow.

 

Silver as a Monetary Asset

 

While the general investing public will treat silver as a monetary asset more and more, central banks and governments will not. At least not until there is a notable monetary collapse of one of the world’s ‘hard’ currencies.This will follow gold being used as a reference point for monetary values and as an active part of the monetary system. Central bankers will resist the return to a monetary role for as long as they can. Eventually they will be forced to accept it, in the face of a visible failure of national currencies to provide a credible monetary role.

 

The Future Silver Price

 

For subscribers only.

 

 

Forecasts for the Silver Price

 

For subscribers only.

 

Previously forecasted in June

 

vThe current silver price at $34 -$35 is just above support.

 

vIt should break through resistance at $37.50-38.

 

vIf resistance is broken it will move back above $40, then to$48 and higher thereafter.

 

vIf it fails to break $38, then it will underperform gold for a while and take longer to consolidate.

 

Current record gold prices should be seen as a buying opportunity in the gold and silver markets!

 

 

Kind regards,

Julian Phillips and Peter Spina, or the Gold & Silver Forecasters

www.goldforecaster.com & www.silverforecaster.com

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About Julian Phillips / Commentary Author

www.GoldForecaster.com / www.SilverForecaster.com

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