Will Silver Prices Continue To Fall?

silver demandMoney Morning Staff: As gold prices plummeted $200 in two days, silver prices fell about 14%, or $4, to below $24 an ounce.

Our Money Morning resources expert Peter Krauth explained the reasons behind gold’s fall, so we went back to him to find out the deal with silver prices. Will silver keep falling? Is it a buy at the lower levels?

Here’s what Krauth offered for investors.

Money Morning Staff: Peter, are silver prices falling because gold fell, or are there other factors at play here?

Peter Krauth: There are two factors.The first is that silver follows gold rather closely, and usually amplifies its behavior, both up and down. However, it can and does sometimes detach from gold and behave independently, but this is more of a rarity.

The second is silver’s industrial demand.

I believe is a factor that I think does affect the silver price in the current environment. Silver does have more industrial uses than gold, so there are some different price drivers.

While silver’s industrial demand will help support the price, the recent selloff likely is in sympathy with the lower-than-expected Chinese gross domestic product (GDP) growth which, for the first quarter this year, came in slightly below at 7.7% rather than the expect 8%.

MM: For anyone interested in investing in silver now that the price has fallen to lower levels, what’s a better buy: physical silver, or silver-related stocks?

Krauth: I’d recommend both. Buy physical silver to establish a lower risk base position. Then investors can augment that position by buying quality silver stocks that offer considerable leverage to the silver price.

MM: The CME Group, the parent company of the main metals and energy exchanges in the United States, changed on Monday the gold and silver margins by 19% and 18%, respectively. What effect will this have on further gold and silver price movements?

Krauth: I think that raising margins right now will simply provide additional headwinds to immediate gold and silver price gains.It could help push both precious metals somewhat lower in the short term, since futures buyers/owners will have to put up higher amounts to control the same quantity of gold and silver than previously. But over time I expect the effect to diminish, and those margins are likely to come down again.

Final Note from Krauth: One other thing I’d like to address is that throughout this selloff, I mean going back the last few months, we’ve seen very strong silver coin buying.

The U.S. Mint has sold 2.22 million ounces so far in April, which is on pace to exceed the 3.37 million and 3.36 million in March.So far this year, sales have reached 16.44 million, easily outpacing the 11.66 million for the first four months of last year.

It’s very telling that even with falling silver prices, people are stepping up their buying.And the premiums are high around $4 per American Silver Eagle, indicating very limited supply.

My take is they’re seeing better value as the price falls.

Related: iShares Silver Trust ETF (NYSEARCA:SLV), ProShares Ultra Silver ETF (NYSEARCA:AGQ), ProShares UltraShort Silver ETF (NYSEARCA:ZSL).

Money MorningWritten By The Money Morning Staff

We’re in the midst of the greatest investing boom in almost 60 years. And rest assured – this boom is not about to end anytime soon. You see, the flattening of the world continues to spawn new markets worth trillions of dollars; new customers that measure in the billions; an insatiable global demand for basic resources that’s growing exponentially; and a technological revolution even in the most distant markets on the planet.And Money Morning is here to help investors profit handsomely on this seismic shift in the global economy. In fact, we believe this is where the only real fortunes will be made in the months and years to come.

Leave a Reply

Your email address will not be published. Required fields are marked *