Will Silver Shine Brighter?
Staff Writer, CNBC.com
There’s been a lot of attention paid to more glamorous and expensive gold, but could silver prices be about to have a resurgence?
Investors in the gray precious metal have had a rollercoaster month.
The price of silver suffered its biggest weekly plunge in more than 35 years in the first week of May. After rising by 175?percent since last August, its price per ounce plunged by 29.2?percent to $35.07 per ounce, compared to a peak of $50.
This week, silver has performed much better and edged above $38 per ounce. It could hit $40 by the end of the week, Jimmy Tintle, market analyst with Transworld Futures, predicted Tuesday.
The drops earlier in the month were partly caused by the Silver Trust's taking advantage of price rises to sell off around 1,000 tones from its holdings onto the market over two weeks, with the majority of its holdings sold in the second week.
Billionaire investor George Soros also sold off large portions of his silver holdings, together with gold, earlier this year.
The silver market is smaller and less liquid than its bigger brother gold.
“The day-to-day dealings (of the silver market), while well-organized, are not sufficiently large in two-way traffic to accommodate the sudden appearance of 1,000 tones in two weeks,” Julian Phillips, analyst at Gold Forecaster, said in a research note. “This is why the market is so volatile and swings so widely, compared to the gold market.”
“The silver market will, over time, see a lessening of volatility once prices are higher and silver more accepted as a precious metal more closely linked to gold. We would then expect to see silver prices move far closer to those of gold,” Phillips added.
In recent days, silver has been boosted by a bullish note from Goldman Sachs on commodities, and continuing interest from emerging markets.
“As to the investment demand for silver, this is at its largest from the emerging world and is likewise relatively price-insensitive. People from this part of the world are buying in line with their increasing income and ability to buy,” said Phillips.
The ratio of the price of gold - which has hit record highs and consistently stayed above $1,500 per ounce in recent days - to silver is also important. Gold is currently priced at a ratio of 40 to silver, far above the long-term average of 27, which could leave more room for silver to rise again.