Silver Prices React to News China’s Economy is Cooling

- June 2nd, 2010

The news story getting the most attention (and causing the most hand-wringing) this week is evidence China’s economy is cooling after the nation posted a growth rate of 11.9 percent in the first quarter of 2010.

By Melissa Pistilli—Exclusive to Silver Investing News

Silver Prices on the COMEX in New York started off Wednesday morning with a 34 cent drop from Tuesday’s close, hitting a low of $18.07 an ounce in early trading. Prices for the white metal picked up later in the trading day as the precious metals complex rebounded and the dollar weakened. Silver managed to break through the $18.30 resistance level to close at $18.37 an ounce.

While silver often follows gold, its industrial side also leads it to track copper, which seems to be the case this week. Commodities across the board suffered this morning as fear over global economic slowdown, or even a double dip recession, pervaded the markets.

Copper prices continued to fall on the COMEX and LME Wednesday morning, hitting a new week low. Analysts cite ongoing debt problems out of Europe, signs of a slowing economy in China and worries over the US recovery as factors pressuring commodities prices the past few days.

This week, commodities took their biggest dive since Lehman Brothers jumped the plank back in 2008. “The slump is a result of risk-adverse investors abandoning their positions in commodities, at the onset of data pointing toward stalling economic growth,” explains Leia Michele Toovey for Copper Investing News.

“Commodities last fell into a bear market in 2008, when the CRB plunged 56 percent in five months as the U.S. suffered the worst financial crisis since the Great Depression, growth contracted on a global basis for the first time since 1981, and the Journal of Commerce index was below zero,” reported Bloomberg.

The news story getting the most attention (and causing the most hand-wringing) this week is evidence China’s economy is cooling after the nation posted a growth rate of 11.9 percent in the first quarter of 2010. The Chinese government recently moved to squash the overheating private and commercial property market and protect against inflation. There are also indications that China’s stock market may suffer further losses, especially with Europe’s debt issues spilling over into the Asian Giant’s realm as euro zone demand for Chinese exports wanes, which may lead to further economic slowdown in the region upon which the world has been pinning its global recovery hopes.

Let’s hope this isn’t a prelude to worse things to come in the second half of 2010. Fingers-crossed. But, we all know how fear can grip the markets, making traders and investors push the panic button, sometimes unnecessarily.

While we would all be wise to keep an eye on any economic news out of China, we should temper our decisions with some sage advice from one Master of the Markets, Resource OpportunitiesLawrence RoulstonIn this age of the Internet, we have instantaneous reaction to whatever news happens to be on the screen at that moment. I think investors need to stop reacting to headlines and take a longer-term outlook on their investments.”

Company News

Two new mining firms are coming onto the scene as Vancouver-based Goldcorp Inc. [TSX:G] [NYSE:GG] sells of some of its precious metals properties in Mexico and Guatemala.

In May, Goldcorp sold its Escobal silver deposit in Guatemala to newly created Tahoe Resources Inc. for $505 million with Goldcorp holding a 40 percent stake in the company. Headed by former Goldcorp CEO Kevin McArthur, Tahoe recently completed a C$348 million IPO and expects to go public next week.

On Wednesday, Goldcorp announced it is selling the San Dimas gold and silver mine in Mexico to another Canadian firm, Mala Noche Resources Corp. [TSX.V:MLA] in a deal valued at $500 million, which includes a 30 percent stake in the exploration firm.

Mala Noche management reports the company will be changing its name to Primero Mining Corp., which will be headed by former Iamgold [NYSE:IAG] [TSX:IMG] CEO Joseph Conway, after the sale is completed.

Goldcorp is reportedly looking to focus its attention on its larger projects, including the Penasquito mine in Mexico set to begin production in 2010. The company plans to use the cash from the San Dimas sale to buy the Camino Rojo project, in close proximity to Penasquito, from Canplats Resources Corp [PINK:CPQRF].

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