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Silver prices are outpacing gold this year

“A Chinese slowdown will be bearish for both gold and silver as they are [among] the biggest gobblers,” said Chintan Karnani, chief analyst at Insignia Consultants in New Delhi.

Other possible risks to silver futures include a global recession, central banks raising interest rates, and the debt crisis in the euro zone, Karnani said.

But Lundin said it won’t be the industrial component of silver demand that will mainly drive its price higher. It is investment demand that drives the silver market — and that demand is “driven, like gold, by monetary inflation. The more money that gets printed, the higher gold and silver prices will be.”

Demand for silver as an investment is on the rise, particularly as gold prices “move out of the reach of the lower middle- to working-class investors in the emerging world,” according to Phillips. The iShares Silver Trust, backed by silver bullion, has climbed more than 20% year to date.

But interest in the white metal can sway either way. Mark Leibovit, chief market strategist at VRTrader.com, attributed some volatility to market manipulation, which he also calls “financial terrorism.” The recent gold and silver “flash crash” was “clearly an abnormal move,” he said.

On Feb. 29, gold futures sank 4.3%, while silver futures dropped nearly 7%.

“As investors or traders, we’re at the mercy of larger players who sometimes work in our favor,” said Leibovit. But “even the smackdown last week … by those attempting to manipulate the market is par for the course.”

Tempering risk

With such a complicated set of factors driving its prices, analysts suggest a few ways for investors and traders to temper risk.

Karnani suggested that Comex silver futures comprise 20% of an investor’s silver investment, and that he prefers to invest in them at around $31, with a price target of $42-$51, if the investment plan is long term. Other analysts, however, see the futures market as too risky.

Lundin said an investment strategy may also include Comex silver options. Buyers of call options pay a premium for the right but not the obligation to be long the underlying market at a specific price for a specific period, he says. Call options buyers aren’t buying the market. They are merely buying the right to be long that market.

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Posted by on Mar 9 2012. Filed under Silver Analysis. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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