Precious Metals

Bernanke’s testimony before Congress had devastating effects on silver, which had just reached a five-month high. But investors quickly cast a lifeline and the metal is recovery mode.

By Michelle Smith — Exclusive to Silver Investing News

Bernanke Speech Crushes Silver Rally The week began with silver continuing its push toward another multi-month high. Its climb was ended when US Federal Reserve Chairman Ben Bernanke went before Congress. Investors seemed to react not to what the Fed President said, but rather to what he didn’t say. However, the sell-off was short-lived and today silver has been clawing its way back.

On Tuesday, silver soared, gaining more than four percent. Recently silver has been receiving love from fund managers and other institutional investors who have realized the metal’s value compared to other options.

ETP investors are showing their desire for the metal and have been taking a notable amount of interest in the market lately.

Silver is also benefiting from a positive change of investor sentiment in India. The rupee has recovered and stabilized against the US dollar, and it appears that Indian investors are not only returning to the market, but are also becoming quite bullish on the metal.

On Wednesday, the gold-silver ratio contracted to the lowest level since September. Positive US GDP data helped drive silver to a five-month high, allowing it to breach $35.65. The market was seeing “buy” stamped all over the white metal.

Bernanke testifies

On Wednesday, Bernanke testified before Congress, speaking of the potential for modest US growth and voicing concerns about unemployment. What he said didn’t appear to garner much attention from investors. But, he didn’t say anything about another round of quantitative easing, or QE3, and that moved the metals markets.

Investors wanted announcements of more loose money from Europe and the US, and the EU didn’t disappoint. On Wednesday, the European Central Bank announced a 530 billion euro injection. When these central banks have cranked out cheap money in the past, it has proven positive for precious metals, including silver. Bernanke, however, failed to follow suit and the disappointment was devastating.

COMEX’s May silver contract fell more than $3.50 in less than an hour.

While Bernanke undoubtedly receives credit for dampening the market yesterday, it should be noted that a slight profit-taking attitude was rearing its head in Asia before US markets even opened. And, there are those who believe that investors and traders have been itching for a reason to cash in, and the Fed testimony was just what they needed.

Investors cast lifeline

Silver supporters have quickly regained their nerve. US trading began today with the metal on a positive path. Bernanke went back before Congress, but neither his statements nor omissions warranted any market-moving headlines during the US trading session. According to CME Group, the market typically sees its biggest reactions to initial testimony.

There was a lot of data released in the US, and some of it was disappointing. US ISM manufacturing data came in lighter than the markets would have liked. Construction spending fell for the first time since July, and though consumer spending rose, it did so to a lesser degree than expected.

On the flip side, US jobless claims fell. Detroit’s Big Three – General Motors, Ford, and Chrysler – all beat estimates, and February retail sales also beat expectations.

The market environment is characterized by mixed signals as much as anything else. This tit-for-tat with positives and negatives can produce a lack of conviction in an already jittery market, so participants should expect continued volatility at least in the short term.

Investors should also note that some of today’s recovery is attributable to bargain hunters buying on the dip, which serves as a reminder that one investor’s fear can translate into another investor’s bargain. Those who are following the crowd are often trailing behind a group that barely digests the headlines before making a move.

The close

The May silver contract started on a positive note today and was able to recover much of the loss seen yesterday. Though still $2 below Wednesday’s five-month high, the contract closed today at $35.57 after opening at $34.64.

Spot silver prices acted in a similar manner today. At 9 am EST, the price was $34.69. Prices hit a high of $35.76 before settling back down to $35.51, for a gain of 2.51 percent.

Junior mining news

Last week ended with Minefinders Corp. (TSX:MFL,AMEX:MFN) announcing its Q4 and full-year operating and financial results. The company saw strong gains for both periods compared with 2010. On an annual basis, silver production rose from 1,218,664 (2010) to 3,572,357/oz (2011). Sales of silver also drastically increased from 1,153,547 (2010) to 3,552,031 (2011).

President and CEO Mark Bailey said the company achieved its objectives for 2011 and exceeded the production forecast. This year Minefinders expects to produce and sell 3.5 to 4 million ounces of silver.

On Monday Silver Bull Resources (TSX:SVB, AMEX:SVBL) reported positive drilling results for the Centenario Zone at the Sierra Mojada project in Mexico. The highlights from these results include two holes with 100+ meter intercepts of silver oxide mineralization intersecting high-grade zones of 417.64g/t silver over 10m, 283.89 g/t silver over 13.05m, and 176.77g/t silver over 21.5m.

“Considering the extent of the Centenario Zone defined so far, we are very confident this will add a significant amount of silver to our next resource report expected in Q2 of this year,” said Tim Barry, President, CEO, and director of the company.

Trevali Mining Corp. (TSX:TV,OTCQX:TREVF) announced that it has entered a subscription agreement with a subsidiary of Glencore International. The private placement will involve the sale of 12.6 million common shares for $18 million.

The deal is still subject to approval. Upon completion, Trevali will invest the funds in the advancement of the Santander mine in Peru and in capital facilities for the Halfmile mine in New Brunswick, which is presently under production ramp-up. Glencore will then hold about 7.8 percent of the issued and outstanding shares in addition to Trevali’s $2 million convertible debenture facility.


Securities Disclosure: I, Michelle Smith, do not hold equity interests in any of the companies mentioned in this article.



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