Why Silver Prices Could Rise In The Short-Term

silver demandJohn Whitefoot: The year 2013 was not kind to gold; the yellow metal closed the year down about 28%—its biggest annual drop in three decades. But in spite of the awful year for gold, it wasn’t the worst-performing metal in 2013. That dubious distinction goes to silver.

On the heels of quantitative easing, a devaluation of the dollar, and inflation, safe haven investors were expecting silver prices to trade in the $30.00–$50.00-an-ounce range. Sadly for these investors, that did not come to fruition.

After starting 2013 at $30.00 an ounce, the white metal finished the year around $19.50 an ounce—an annual loss of 36%. The dismal year is even more cringe-worthy when you consider silver recorded an average price of $31.15 in 2012—the second-highest on record.

Silver prices tanked in mid-April on the back of gold’s violent descent. Gold prices plummeted (in part) on the rumored sale of gold reserves in Cyprus. This decline occurred despite the demand for physical gold remaining strong in India and China. This point is important because, together, these two countries account for more than half of the annual demand for gold.

Still, silver prices fell in step with gold and then continued to slip lower over the ensuing months after the Federal Reserve hinted it might begin to taper its $85.0-billion-per-month easy money policy.

While analysts are divided as to how silver will perform in 2014 (some of them are calling for a range of $19.00–$26.00 an ounce and others are suggesting $30.00–$34.00 an ounce), the year will present investors with some solid opportunities.

For starters, the recently announced pullback in quantitative easing from $85.0 billion a month to $75.0 billion per month and a (so-called) “improving” economy has tempted some investors to move away from safe haven investments (like the precious metals) and into other equities instead, looking for better returns.

This is a double-edged sword that could benefit silver prices. While the quantitative easing pullback has begun, the program is firmly entrenched and is going to be in place for a long, long time. Currently trading near $20.00 an ounce, the precious metal has solid support near $18.00 an ounce, and when it dips to $19.00, buyers will flock in. At the current levels, there will be continued interest for silver throughout 2014.

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