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2011 Silver Market Trends

Posted on 2012-11-05, By A-Best Staff
By Michelle Smith–Exclusive to Silver Investing News

2011 Silver Market Trends

Silver started the year with bullish prospects. At the close of US markets on January 3 (the first trading day), silver was priced at $30.67. In April, the price surged to $49.51, almost reaching the all-time high of $50/oz seen in 1980. Then, in May, silver prices saw a steep drop and have since been on a volatile track. 

At the ETF Securities Precious Metals Conference on December 1, Jim Steel, Commodities Analyst for HSBC, noted that the metal had experienced a 38 percent correction from its peak, but added it had still outperformed most asset classes.

On Monday, silver March delivery closed at $28.94 on the COMEX. This weakness was seen even though US markets opened with a weaker dollar. The failure of silver to rise when the dollar was down spotlights a 2011 silver trend outlined by Steel.

Silver is historically known for moving in negative correlation to the dollar, but it has been moving more with risk assets this year. Steel attributed this to a correlation between the metal and the euro.

Like risk assets, silver’s price volatility could often be explained by the market responding to economic data, mainly from the US and EU. Even today, CME Group reported that the metal’s price was being held down by a lack of confidence in the annoucement of cooperation between the IMF and EU, by the threat of European downgrades, and perhaps would be down even further if expected data out of the US was negative.

Yet, despite the metal’s fall it has still received a positive response from investors. This year investment demand played an increasingly significant role in the silver market. The closing of the curtains on 2011 is expected to come with investment demand perhaps reaching a record of $10 billion according to a report commissioned by the Silver Institute.

Steel reported that silver ETP investment was down about 33 million ounces for the the year, but noted that this could be rebuilt very quickly.

ETPs are a primary vehicle for investors to play the silver market and ETF Securities quarterly report shows that investors have indeed been active in 2011.

ETP demand spiked in July with net inflows of $939 million, which the report notes as the largest monthly inflows seen since November 2010. Overall, in Q3, silver ETPs were the second largest ETP sector with positive inflows in all three months totaling $1.6 bn, bringing global ETP silver assets held to about $18 bn.

Demand for silver coins and medals has also been reported as strong this year. According to the aforementioned report by Thomson Reuters GFMS for the Silver Institute, these two applications are set to represent the largest gain in volume terms of any category of fabrication demand in 2011. Chinese and Indian markets are credited as being significant drivers of demand for these products.

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