The Conversation (2)
Sep. 23, 2010 12:05PM PST
As silver prices rise along with gold and investment inflows to silver ETFs increase, could the sometimes precious, sometimes industrial metal’s recent rally be merely a momentum play? Is the silver market experiencing a bubble of its own?
By Melissa Pistilli—Exclusive to Silver Investing News
Yesterday, the Dollar Index dropped to its lowest level since March 17 after the Fed said it may dump billions more into the economy through debt purchases. Thursday, the greenback showed some moderate strength, which may have contributed to silver’s slight decline in early morning trading, but silver soon recovered rising as high as $21.26 an ounce.
Gold futures reached another all-time high yesterday, trading at $1,298 an ounce in New York before a close of $1,291.20 an ounce.
Silver continues to outperform gold as many investors are attracted to it as a cheaper alternative. For this reason, the white metal is often billed as “the poor man’s gold,” but is silver a good buy at these levels?
Veteran silver investors are highly aware of the small market’s volatile nature as few have managed not to get burned by sudden sharp and spiraling drops in prices. Silver’s dual nature makes it highly sensitive to gold’s price fluctuations as well as price negative industrial data and reports.
Most precious metals investors are aware of the concerns of some analysts that the gold market may be experiencing a bubble. Part of the argument is that gold’s current price rally is purely momentum driven rather than based on actual supply/demand fundamentals. The creation and rise in popularity of gold exchange-traded funds (ETFs) over the last five years is purported to represent a disproportionate amount of investor and total demand for the precious metal, and some say, has led to a false, inflated perception of demand that further pushes prices up.
As silver prices rise along with gold and investment inflows to silver ETFs increase, could the sometimes precious, sometimes industrial metal’s recent rally be merely a momentum play? Is the silver market experiencing a bubble of its own?
Shirley Won, investment funds reporter for the Globe & Mail, cites a few of the precious metals market’s most revered analysts in a recent article concerning silver’s price trends and investment potential going forward.
CPM Group’s managing director, Jeffrey Christian, sees the white metal “possibly” reaching $22 an ounce soon and $25 an ounce “over the [next] several months.” But, Christian cautions that the Group expects the prices to “come off a bit . . . to trade at $16 to $22 over the next couple of years.” Meaning, silver may be close to reaching its peak.
Kitco’s Jon Nadler, the senior precious metals analyst gold bugs love to hate, says $23 silver is a possibility. However, he warns that silver plays at this juncture should be regarded as speculative because the market is now seriously “dependent upon investment demand” and demand from ETFs. “Such demand at best is cyclical, fickle and tends to get up and leave when conditions change,” said Nadler.
Won’t take Nadler’s word for it? Well, no silver buff can ignore the proclamations of David Morgan, oracle voice of The Morgan Report newsletter. The silver guru sees a severe stock market correction coming soon that could push silver prices down. “I am sitting on the sideline now because I am expecting a pullback,” said Morgan. Monday, according to Won, the newsletter writer sold a quarter “of his silver and gold positions that he uses for trading.”
