Silver and gold prices surged on the bullion market today, getting back to the growth story of last year which saw the yellow metal rise 30% and silver rise by over 80%. The silver price is now at over a 30-year peak, exceeding the US$30 per ounce mark in December and it is still changing hands at about US$29. Back at the beginning of 2010 silver was trading at only US$16.82.
The emergence of stockists buying to meet the seasonal demand for the Indian festivals of ‘Makar Sakranti’ and ‘Lohri’ were cited for the rise. Your view on whether gold, silver and other safe haven investments will continue to be attractive this year rather depends on your view of global economic risk.
Markets have emerged rather positive at the turn of the year, but for several reasons, we remain of the view that metals and commodities continue to offer good value to investors, not least with concerns over the Eurozone, US municipal debt and the likely weak US Dollar in 2011.
Silver prices are generally more volatile than gold and track the yellow metal. Like gold, silver benefits from safe haven demand and being denominated in US Dollars it moves up when the dollar tracks down and we can note that the greenback is now down 28% in the last ten years, even as it showed minor advances last year. There is talk again of systemic failure in markets and similarities are being drawn with the double dip of the 1930s which preceded the first Great Recession.
Silver also benefit improving industrial demand as the metal is used in a variety of products ranging from iPads to solar panels to automobile parts. According to precious metals consultancy GFMS, batteries and other industrial uses account for around half of silver demand, so therefore silver demand will be further shunted into the positive if industrial production in emerging economies pans out as strongly as expected.
The rally today renewed a debate over the global economic risks for 2011 and whether silver and gold can continue a rise that has somewhat defied the traditional ratios and indeed the whole way that we define the ‘economic cycle’.
The rise of gold today comes after its biggest weekly drop since May as Europe’s sovereign-debt crisis came back into the headlines. Silver climbed by the most in a week and platinum also gained.
In 2011, the highlight in the global financial markets will continue to be slow recovery in the US, the UK and the Eurozone. A lot will depend on how much growth in emerging countries takes up the slack of sluggish growth in the West but demand for safe-haven assets will continue to remain bullish at least for the next six months. Further moves by the US Federal Reserve to support the world’s largest economy will, as in 2010, be watched closely for signals in the markets. For now the picture is still quite unclear and we can expect gold, silver as well as other metals to be among the main beneficiaries.
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