After four days of an upward climb in mid-July when silver prices reached $40.55 per ounce, spot silver prices fell by $1.022 to reach $39.53 per ounce on July 19. Analysts are of the opinion that silver prices are reflecting the reactions of investors who are concerned about the approaching August 2 deadline for the US debt ceiling, the Eurozone debt and the US Federal Reserve hinting at a third round of quantitative easing (QE3). They agree that while the fall may just be a result of precautionary selling or profit taking, the long-term prospects for precious metals such as silver are promising since structural issues with debt and loose monetary policies are here to stay. In 2010, the price of silver increased by almost 80%.

When asked about the future of silver under current conditions, Jamie Greenough, an investment advisor with Global Securities Corporation, said, “I don’t think that we have seen the high for the year.” Reflecting on the fall in prices since April 25 when silver was traded at $49.79 per ounce, he added, “The CFTC absolutely slammed the market by raising margins, which took the wind out of the sails for silver. Now the silver market has had a chance to build a base, and finally digest the requirements. It appears that there is now a solid base for silver around the $35 per ounce level, and we are now seeing some appreciation.”

Over the last one year, China has been importing silver in record quantities and trends indicate that it will continue to do so this year as well. In 2010, China imported a record 3,500 tonnes of silver and the strong demand shows no sign of slowing down. Industry, jewelry and investment are the three sectors accounting for the highest demand with industry constituting 70% of the demand.

Other than China, India has also shown an increasing demand for silver. The two nations are expected to show a 30% increase in the demand for silver this year. In 2010, India consumed about 2,800 tonnes of silver and consumption is expected to grow to 5,000 tonnes this year. In India, it is the rural sector that accounts for the highest investment in silver. Given the market uncertainties, investors in both nations are focusing on silver as a way to hedge market losses.

Considering the possibility that the current market trend of silver may replicate the pattern seen in the period between 1971 and 1980, Citigroup analyst Tom Fitzpatrick and two others wrote, “If the final rally in the last bull market repeated then we can expect $100 over the long term. While the high so far this year was at the same level as the peak in January 1980, we are not convinced that the long-term trend is over yet.” They added, “The move down from the April high this year has come to an end and the double bottom is a good platform for a turn back up.”

Metal dealers expect to see a huge rush for silver within the next month or so as investors collectively wake up to the fact that its long-term prospects are very positive. Usman Khalid, a supervisor at Toronto-based Gold Stock, said, “If I had my bet, I would definitely go with silver long-term. I think silver is under-valued, there’s a big demand for it and it should go up.” He added, “With physical silver you have the option of doing a lot of stuff, but with ETFs you just have it as an account. Physical silver you can use it as an investment, jewelry, or anything you like in any form.” Khalid said that in spite of the price fall, silver is still the preferred metal instead of gold, for long-term investments in precious metals.

By Anthony David

http://www.criticalstrategicmetals.com

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© 2011 Copyright Anthony David- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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