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Silver’s Downtrend: Just Volatility?

Posted on 2012-11-05, By A-Best Staff

Silver ended 2011 just shy of $28. However, as we bear down upon 2012′s mid-year mark, we are now watching it struggle to stay above $28, almost as if the market has gone virtually nowhere. Yet, those who have been invested in the white metal know that that isn’t the case. Silver had a stellar start this year, one of the best in decades. The metal climbed over $9 dollars to touch a year to date (ytd) high of $37.23. But, for the past couple of months the market has been in decline raising the questions: Is this is just run of the mill volatility and if so, what will save silver?

Investors may recall that analysts were generally positive about silver’s performance this year, with many suggesting that 2012 could mark the moment in time when the metal reached or surpassed $50. However, it must also be remembered that analysts didn’t suggest that it would be a smooth ride in any particular direction.

Actually, of the 25 analyst forecasts reported by the London Bullion Market Association (LBMA), $28 was the highest of the low prices projected for this year. Mitsui and Company analyst David Jollie predicted that silver could drop as low as $19.20 but still expected the metal to average $30.95.

Some suggest that the current weak prices of the metal and its miners, means that this is a buyers market.

“When silver exhibits volatility, volatility in equities is exaggerated, and that creates opportunity,”Chris Thompson of Haywood Securities told the Gold Report.

This suggests that believers in silver should be rushing to snap up the bargains, but for the most part, this isn’t happening. On the contrary, as prices have fallen investors have been packing up and leaving camp. Of late, there have been exits from futures, ETFs, and physical holdings.

Sure silver is a volatile market. After all, that is why it’s called the devil’s metal. But, many investors identify volatility as ups and downs. Silver has been in a downtrend on daily charts for two and half months. With prices now hoovering only slightly above the levels seen at the end of last year and with the memories of wounds incurred from the 2011 market volatility still fresh, many investors are undoubtedly risk averse at this point.

Even Thompson says if we see a significant breakdown from $28, it may compromise his firm’s forecast of an average $36 for the year.

Given the recent losses of investment support, many investors have begun looking at the metal’s industrial support and they are not finding encouragement.

For many people, there is little question of whether there will be a recession in the Eurozone. The greater concern is how severe will it be and how it will play out on a global level. There is less debate these days as to whether China is actually slowing down as people instead try to gauge how drastic the nation’s slowdown will be and what that will mean on a larger scale. There is also increasing skepticism about India’s silver demand, with ScotiaMocatta predicting the nation’s imports could drop by 27 percent this year.

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