Do Silver Prices Shed Light on Other Metals?

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Shame on me for betting against the dollar thinking that silver would do a little better than gold (provided that the dollar continued to poorly perform against other currencies). Both silver and gold are off for the reasons stated in my earlier piece (e.g. the Fed has indicated that the rate cutting may be at an end and there is talk that the dollar will be moving out of the gutter where it appears to have taken up permanent residence) There have been a few market shifts worthy of mention. Some of these shifts may mean some good news for industrial buyers of other types of metals. Silver prices have dropped over 21% since Mid-March despite a 28 year high on March 17, according to this article in the Financial Times. As we have mentioned previously, Exchange Traded Funds (ETF) have been driving a lot of the investment (speculation) in precious metals. And it is these ETFs that are now leading the way out of gold to pursue other opportunities such as the bond market or stocks. And they appear to be moving out of silver as well.

But what the article points out is that analysts are concerned that ETF’s basically invested in silver as a tag-along to their investments in gold as opposed to investing in silver based upon supply and demand fundamentals. What a shocking statement. Analysts are acknowledging that ETF’s didn’t undertake a rigorous analysis of supply and demand to justify investment decisions? With silver’s decline in use in applications such as photography, lacklustre demand for silver in jewelry making, combined with less demand for silver due to softness within the electronics industry, is it any wonder that silver prices may now be poised to drop further? Ironically, I still believe that silver is backed by stronger fundamentals than gold (gold really is used as the world’s investment safe-haven)…we’ll cover that in another post. In the meantime, I can think of a few other metals trading at some frothy price points without any substantial demand behind them. Can you?

–Lisa Reisman

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