Silver to Fall to $26?

Equities have continued to rally, with the S&P 500 (INDEXSP:.INX) closing at a record high on Thursday. Meanwhile, silver has gone virtually nowhere, with its spot price remaining nearly unchanged from the last several weeks. A couple of firms project that when silver prices do start to move, they could be headed to the downside.

Even investors who are in the market for safe-haven assets have been largely ignoring silver.

Wednesday, the metal took a notable intraday dip, falling to a low of $28.10. That occurred as gold and the dollar attracted safe-haven support from investors concerned about the opening of Cypriot banks following an extended closure due to the nation’s financial crisis. Silver eventually clawed its way back and closed on the New York spot market at $28.69, with losses of only $0.07.

On Thursday, after the Cypriot banks reopened, conditions were deemed relatively calm. The risk of bank runs in other nations did not materialize. The previous day’s safety seeking largely evaporated, and though that had not particularly benefited silver, the improved sentiment on Thursday did act as a source of pressure on the metal.

The COMEX futures market continues to reveal participants’ bearish sentiment. Last week’s Commitment of Traders report shows that speculative shorts added over 530 metric tons (MT). Shorts are now at three times the five-year average, according to Standard Bank.

ETF investors have been loyal supporters of silver, buying and holding the metal despite its price weakness and the negative sentiment reflected in the futures market. But last week, it appears some investors’ confidence may have wavered as holdings dropped by nearly 80 MT.

The London Bullion Market Association’s (LBMA) clearing statistics for February reveal a 20-percent decline in the amount of silver transferred between accounts. While there was a rise in the number of transactions, there was also a 22-percent decline in total transaction value. Kitco said the LBMA noted that this decrease is likely indicative of smaller deals being settled.

“We believe silver should be approached from the short side on rallies on approach of $31 at this stage,” said Standard Bank. “We see a good possibility that the metal could test the 2012 lows around $26.50 in the near term,” the firm added.

Scotiabank has a similar outlook for silver. Noting that the metal has been in the $27.98 to $29.44 range since mid-February, the firm said, “we have been bearish silver looking for another leg lower to $26.”

These projections come on the heels of several other firms downgrading their average price forecasts for the metal.

The close

COMEX May silver ended the Thursday floor session at $28.32 with losses of $0.29. Silver lost $0.33 on the New York spot market, closing at $28.36.

Company news

Silver Wheaton (NYSE:SLW,TSX:SLW) reported a fourth consecutive year of record attributable silver equivalent production in 2012. The 29.6 million ounces represent a 17-percent increase. Sales of 27.3 million ounces represent a 30-percent increase. In line with these results, the company reported record net earnings of $586 million, which is 15 percent higher than those reported in 2011.

“2012 was another exceptional year for Silver Wheaton, anchored by a fourth quarter that saw record production, sales, revenue, net income, and cash flow for the company,” said Randy Smallwood, president and CEO of Silver Wheaton. He added that 2012 production exceeded the company’s forecast by over 1.5 million ounces.

Cream Minerals (TSXV:CMA,OTCBB:CRMXF) announced an updated resource estimate for the Nuevo Milenio silver-gold project in Nayarit State, Mexico. The company said this resource estimate completely replaces any that it has previously filed. It is contained in an independent technical report, which replaces the report filed in October 2012. The report also addresses concerns that were raised by the British Columbia Securities Commission (BCSC).

With regards to the 2012 report, the BCSC was concerned about: the methodology; key assumptions and parameters used to prepare the mineral resource estimates; disclosure of non-compliant mineral resources; improper reliance on experts; and the author’s experience with the subject matter.

Argentex Mining (TSXV:ATX,OTCQB:AGXMF) announced that Austral Gold (ASX:AGD) has committed to a $5-million strategic investment. The deal will involve Argentex issuing over 17.3 million share units at a price of $0.28 each. A unit includes one common share and one half of a share purchase warrant; each warrant will allow the purchase of an additional common share at $0.40 for 60 months from the closing date.

Michael Brown, president and CEO of Argentex, said one of the benefits of this strategic investment is that it will enable the advancement of development activities at the company’s flagship Pinguino silver-gold project in Santa Cruz, Argentina.

Colombian Mines (TSXV:CMJ,OTC Pink:CMBPF) said reconnaissance work has identified additional high-grade mineralization at its Mercedes property in Columbia. The results include up to 2.3 grams gold per MT, 203 grams silver per MT and 10.1-percent copper in grab samples from outcropping mineralization in a new area approximately 1.5 kilometers wide by 2 kilometers long.

This new area is located roughly 3.3 kilometers south southeast of the area where previously announced mineralization returned results to 49.8 grams (1.6 troy ounces) gold, 744 grams (23.9 troy ounces) silver per MT and 26.47-percent copper.

Robert Carrington, president and CEO of the company, said, “we are still a long way from being able to call it a discovery but finding so much high grade mineralization over such a large are on a first pass reconnaissance program suggests a large, strong mineralized system is present with excellent discovery potential.”

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