Silver Slips on the Day, Long Term Outlook Still Strong

By Michael Montgomery—Exclusive to Silver Investing News

Ongoing economic concerns, previously thought to be a supporting factor for the price of silver are now putting downward pressure price. Silver spot price slipped on the day, down $0.34 to $36.80 per ounce, a loss of 0.92 percent. The downward pressure for silver is being attributed to concerns that weak jobs and economic data may hurt the industrial demand for the metal. The market also reacted to a speech from Fed Chair Ben Bernanke at the International Monetary Conference in Atlanta. In the speech Bernanke took a third round of easing measures off the table, and noted that the probability of an interest rate hike is low.

In an Exclusive interview with Silver Investing News, William Rhind, Managing Director of ETF Securities, spoke about the current trends in the silver market.

Over the last few trading sessions weak economic data has prompted fears of a slowing recovery, hurting the price of silver. The main concern is the industrial consumption for silver which make up more than 46 percent demand according to GFMS data.

“I think the main factors driving silver over the past week is economic data pointing to hesitancy in the global recovery. With that uncertainty we have seen silver prices trending in a tight range,” stated Rhind.

In the long term silver is dominated not by fears of weak industrial demand but by inflation fears by investors seeking silver as a safe haven asset. As the price of gold has become out of reach many individual investors have looked to silver.

“The majority of the momentum in the silver market is driven by the US dollar inflation expectations. Short term industrial statistics are an important consideration, but they are not the most important factor in the silver market right now. What we hear most from investors is they are trying to get access to the precious metals story, and the hard asset inflation protection. Silver is seen as a more attractive price point than gold,” stated Rhind.

The recent price correction that sent silver from upwards of $50 down to $32 per ounce has largely been attributed to the increased margin requirements from the CME group. Between April 25 and May 5, COMEX increased silver margins to as much as 12 percent, or $21,600 per contract, from 6 percent, silver tumbled 25 percent.

“It accounted for a lot of short term investors that were sensitive to those margins,” state Rhind, adding, “From our perspective we saw investors holding through that period, which suggests that the longer term money is still bought into the silver market.”

The investors that Mr. Rhind is speaking about are ETF investors in his firm and others. As silver’s price fell dramatically, many silver ETF’s performed better than silver’s spot price. “An ETF investor is a cash committed investor, whereas the futures investor is investing on leverage. This means that an ETF investor is more inclined to have a longer term perspective on the market and less sensitive to short term phenomenon,” stated Rhind.

Going forward silver’s future seems to have upside potential. Fear of inflation and continuing loose monetary policy in the form of historically low interest rates in the US should support the price of silver. Investors in the market, especially ETF investors, are still in the market due to the long term potential that still remains.