Silver’s rally: Should you be investing?

Silver is leading all commodities this year, up more than 23 per cent. Gold, in comparison, has gained 12 per cent.

All precious metals started re-establishing long positions after the fourth quarter of last year, when there was a severe decline as the euro dropped, equities weakened and commodities fell across the board. There was a lot of margin-related selling in silver as well as in other precious metals. From a high of $50 (Dh183.66) last April, silver crashed to $26 close to year-end, but since the New Year, the market has recovered well.

Safe haven asset

The rally in silver began at the start of the year. That, according to some analysts, is due to renewed investor demand, especially from those who see it and gold as safe-haven assets against devaluation of currencies arising out of loose monetary policies. The US Federal Reserve’s comments last month on keeping the interest rate near zero until 2014 put downward pressure on the dollar, which in turn helped reinforce the rally in precious metals, including silver. And against continued weakness in Europe, gold and silver are still considered valuable hedges. Also, silver is undervalued not just relative to gold, but also, as some suggest, in terms of its demand and supply.

Silver investors might be wondering: what to make of last month’s run? Does the rally have legs? Will it continue to be a lucrative investment?

With regard to where silver prices could go this year, there are some who suggest a high of more than $50, but there seems to be consensus on the average price hovering in and around mid-$30s.

Gerhard Schubert, head of precious metals at Emirates NBD, thinks it is too early to call for another bull run, but the signs for an extended rally are good. “The sales of physical silver all over the world are very strong and the technical and industrial applications for silver are growing,” he said.

Amit Lodha, portfolio manager at Fidelity Investment’s Global Real Asset Securities Fund, believes that one reason of the recent spike in silver prices is due to the rebound in the US economy, which is beginning to drive industrial demand for the metal.

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Posted by Silver Guru on Feb 6 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