By Michael Montgomery—Exclusive to Silver Investing News
Over the past few days a wave of financial news has resulted in mixed outcomes for precious metals prices. European credit downgrades and bond auctions, the IMF calling for $500 billion in funding, and the World Bank’s warning of slowing economic growth has not created much volatility on the day for silver prices.
Silver prices traded relatively flat on Thursday. The spot prices finished the day up $0.12, to 30.64 per ounce, a gain of 0.39 percent. However, the white metal performed better than gold which lost $2.20, to $1,656.70 per ounce, off 0.13 percent due to some mild profit taking.
Last week, Standard and Poor’s downgrades of France, Italy and seven other countries, as well as downgrade threats from rating agency Fitch had very little effect on the bond auctions in those countries.
The latest auctions were longer term bonds, which were considered the first test of confidence for their economies. The successful auctions indicate that investors have dismissed the credit downgrades. However, many are warning that time is running out to find a solution to the problems in Europe.
“The solution to Europe’s crisis must come through partner agreement that enables the European Central Bank to be given a proper mandate to act,” stated Howard Wheeldon, an analyst with BCG Partners. He added that all European leaders have agreed on so far is tantamount to a holding pattern.
The elephant in the room is still Greece’s debt negotiations.
However, talks between Greece and its private creditors for a bond swap scheme have entered the final stage. The deal must be finished by next week to ensure enough time to allocate the funds before 14.5 billion euros worth of bonds mature on March 20th.
There is also some fresh optimism that a debt restructuring deal between the EU and Greece is making progress.
IMF announcement helps boost euro
The IMF announced that it is seeking $500 billion in new lending capacity, including $200 billion in commitments last month from Eurozone members. The IMF is hoping to increase its ability to cope with the effects of the Eurozone crisis.
The announcement helped the euro make gains on the day, which has been a supporting factor for gold and silver.
“The IMF’s quest for another $500 billion in lending resources managed to boost the euro for a second day this morning and lifted gold prices to five-week highs,” stated Jon Nadler, for Kitco.
On the day, the euro climbed to $1.29, while the US dollar index came off 0.43 to 80.08. The movements of these currencies hold a high correlation with precious metal prices.
Slowing economic growth and silver demand
The World Bank (WB) announced that it has lowered the forecast for global economic growth for 2012. The WB reduced GDP growth projects to 2.5 percent, stating that the crisis in Europe may slow down countries like China and India.
“Emerging markets are more vulnerable than in 2008 to a renewed global crisis because rich nations wouldn’t have the fiscal resources they had back then to support their economies. Developing countries, whose deficits have also widened, should engage in contingency planning to have the necessary fiscal leeway if need be,” stated the World Bank in its Global Economic Prospects report.
The news may be troubling for silver in particular, as approximately 50 percent of the total demand for the metal comes from industrial use. A reduction in Chinese growth would certainly dent the industrial demand for silver.
Major firms cut silver price forecasts
Both Morgan Stanley and Credit Suisse have cut their price forecast for silver this year.
Citing uninspiring economic prospects and the case for a stronger dollar, Morgan Stanley cut their projection 29 percent for an annualized average of $35.48 per ounce. A previous prediction from the firm forecasted silver prices reaching $50 an ounce in 2012.
However, the new target price is still expected to make a 7.8 percent gain over the the average price of $32.91 per ounce in 2011.
Credit Suisse’s forecast for silver prices was cut from $33.70 per ounce to $32.70 per ounce. The brokerage did state that the price of silver could benefit from a rising gold price, as well as an improvement in risk appetite.