Three Reasons Silver Prices Will Rally - Money Morning

Three Reasons Silver Prices Will Rally - Money Morning

www.TheSilverPrice.info

With the recent volatility and lows in the gold market, many investors also have been wary of silver prices. 

Silver on Friday closed down 0.4% to $28.87 per ounce. For the week, prices dropped 5.1%. 

Not the prettiest picture, but for the year silver has increased more than twice the price of gold thanks to growing confidence that the global economy will dodge another recession bullet. 

David Jollie, an analyst at Mitsui & Co. Precious Metals Inc., recently said to Bloomberg News, "A greater amount of confidence in the global economy generally means higher growth and that means more silver demand. If you look out beyond the end of the year, you can still see reasons to be bullish."

Why Silver Prices Will Rally

Increased Demand: The global head of metals analytics at Thomas Reuters GFMS, Philip Klapwijk, has forecast silver sales to increase as end-users expand inventories that thinned at the end of 2011. 

A large portion of silver demand - 80% - comes from fabrication, which is expected to rise about 3% to 5% this year to roughly 900 million ounces.

Also helping is China's manufacturing expansion and an increased electronics industry demand. 

Klapwijk also sees current monetary policy increasing investors' appetite for silver and triggering a subsequent price rise. 

Gold, Silver Prices Dip while US Bullion Coins Notch Gains | Coin News

Gold, Silver Prices Dip while US Bullion Coins Notch Gains | Coin News

www.TheSilverPrice.info

Gold and silver prices continued to drift lower Tuesday, but platinum closed higher for the first time in more than a week and palladium settled up for the first time since Thursday.

Gold was again pressured by a weaker euro and stronger U.S. dollar as the yellow metal fell to the lowest point in more than 4-1/2 months.

"(Gold’s) safe haven status has been tarnished," Richcomm Global Services senior analyst Pradeep Unni said, according to Reuters. "It will wobble on the euro’s weakness, but in a very short term, bargain hunting and pent-up demand will emerge taking it higher."

Gold prices for June delivery fell $3.90, or 0.2%, to $1,557.10 an ounce on the Comex in New York, marking a settlement that is the lowest since December 29. Prices ranged from an intraday low of $1,546.80 to a high of $1,564.40.

"The commodity sector is being hit with massive liquidation of funds as investors’ fears regarding a slowing global economy and potential European sovereign issues trump all else," MarketWatch quoted Tom Essaye, editor of the 7:00′s Report, a daily commentary on equity and commodity markets and the economy.

"Gold is getting to that critical level of support at $1,550, and if you can stand the risk, taking a shot there on the long side probably makes sense… As Europe continues to unravel, the prospect of a full blown crisis will increase, and I think you’ll see gold start to absorb some of that money looking for a safe haven beyond the U.S. dollar."

20 Years from Now: Gold at $12,000 & Silver at $1,000? | Resource Investor

20 Years from Now: Gold at $12,000 & Silver at $1,000? | Resource Investor

www.TheSilverPrice.info

hould both gold and silver bulls & bears take a long winter sleep?

Maybe.

When we look at silver prices from 1985 to today (green line in the chart below) and compare the evolution to the one from 1967 to 1974 (black line in the chart below), we can see a very similar pattern. If price would continue to track this pattern, it could mean that silver has just entered a 20 years lasting winter sleep. In the meantime, it would trade between $20 and $50, before taking off again in 2032… From then on, it could gain over 2,000% to reach nearly $1,000.

A similar pattern can be observed in the price of gold, although the time scale is slightly different. Gold would drop towards $1,000 in 2015, before taking off to about $12,000 by 2025.

 

Why the hell would gold drop towards $1,000 per ounce by 2015, while all the fundamentals are pointing to a “screaming buy”?

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Putting Faith in Holding Physical Metals: Eric Sprott | Resource Investor

Putting Faith in Holding Physical Metals: Eric Sprott | Resource Investor

www.TheSilverPrice.info

Long-time investor Eric Sprott, the chairman of Sprott Inc., chief excutive officer, chief investment officer and senior portfolio manager for Sprott Assett Management LP and chairman of Sprott Money Ltd., stirred up a lot of interest he when issued a “Call to Action” to silver producers to limit sales until prices increased and put their convert their cash reserves to physical silver. He’s still pushing that argument, as Resource Investor found when we interviewed Sprott for Futuresmagazine recently.

Resource Investor: How would you characterize your relationship and that of Sprott Asset Management to the futures industry and futures trading?

Eric Sprott: I would suggest that we don’t have a great relationship to the futures industry per se, because we don’t get involved in trading of futures and never have been involved that way. We tend to be buyers of physical metal whether it’s for our accounts here at Sprott Asset Management or whether it is for the two trusts that we have listed on the New York Stock Exchange. Obviously our actions in the physical metals might have some impact on the futures markets because we have been a significant buyer of silver on a relative basis but I don’t actively trade those contracts.

The Yuan, Rupee and Physical Silver Demand :: The Market Oracle :: Financial Markets Analysis & Forecasting Free Website

The Yuan, Rupee and Physical Silver Demand :: The Market Oracle :: Financial Markets Analysis & Forecasting Free Website

www.TheSilverPrice.info

China and India together account for a considerable amount of the current demand for physical silver. Each emerging market country has a strong base of support for silver from individual investors, who often purchase the physical metal as jewelry and bullion since it is thought to provide a more reliable store of value than the local currency. 

Each country also uses silver in various manufacturing processes that result in products intended for export to more developed countries. An especially notable growth of silver use has occurred in China lately as Chinese solar cell manufacturing has expanded tremendously in recent years.  This and other factors have resulted in China shifting from being a major exporter of silver to being a net importer of the precious metal instead.

Furthermore, the currencies of both of these huge countries have foreign exchange rates that are managed quite actively by their respective central banks. If these exchange rates were allowed to float more freely against the U.S. Dollar, what effect would such a policy shift have on the demand for physical silver in those countries?

The Chinese Yuan

The Chinese Yuan is the official unit of account of the Renminbi, the official legal tender in the People’s Republic of China.  The Yuan’s value relative to the U.S. Dollar has been actively managed on the foreign exchange market by the People’s Bank of China for many years.

The PBOC’s currency management policy has typically taken the form of an outright peg, such as during the ten year period from 1995 to 2005 when the Renminbi traded in a tight 8.44 to 8.07 range versus the U.S. Dollar.  This high exchange rate was thought to be beneficial for developing China’s manufacturing export businesses.

Nevertheless, the Renminbi has been allowed to float more freely since then, with its value strengthening to its current level of 6.3235. The managed float partly came about due to criticism and growing pressure from U.S. officials about the persistent undervaluation of the Chinese currency contributing to a large trade deficit between the United States and China.

Most analysts would agree that even this lower exchange rate considerably undervalues the Renminbi on a Purchasing Power Parity (PPP) basis, making goods substantially cheaper to purchase in China than in the United States. For example, the International Comparison Program estimates that the USD/CNY exchange rate on a PPP basis is only 3.45 Yuan per U.S. Dollar.  

If the Renminbi were permitted by the PBOC to appreciate to achieve its PPP value, then silver would very likely be even cheaper in Chinese currency terms than it is now, thereby prompting even greater demand for the precious metal among the massive Chinese population.

The Indian Rupee

The Rupee is India’s official currency, and it has a market determined exchange rate versus the U.S. Dollar. Nevertheless, its value is actively managed by the Reserve Bank of India to prevent excessive exchange rate volatility.

The Rupee has been trending lower since forming a base at 7.72 in the early 1980’s, which has been a key factor behind persistent physical silver purchases by individuals based in India. 
Another contributing factor is the consistently high inflation rate in India, which is running at almost 7 percent per year by recent estimates.  The RBI also cut its benchmark interest rates by a greater than expected 0.5 percent in April, further undermining investor interest in Rupee denominated assets.

The Indian currency also just hit an all-time low versus the U.S. Dollar of 53.83 on May 9th before the RBI stepped in to prohibit those exporting goods out of India from retaining 50 percent of their foreign exchange earnings.  The Rupee recovered substantially on that news, which was expected to result in an extra supply of $3 billion that would need to be sold for Rupees.

Nevertheless, the International Comparison Program estimates that the USD/INR exchange rate on a Purchasing Power Parity (PPP) basis is only 14.67 Rupees per U.S. Dollar.   If India allowed the Rupee to appreciate substantially toward its PPP value, the price of physical silver would become much cheaper in local terms, also spurring already buoyant local demand for the hard currency.