30 May 2011

As the Dust Settles After Silvers Cliff Dive, Physical Silver Coin and bar Buyers Return

BullionSupermarket.com has reported increasing interest in physical Silver bullion items, as buyers return to the market, with steady demand for gold bullion coins and bars

The correction in Silver was described in popular media as a "crash". A somewhat inaccurate description given prices fell back to levels only six weeks previously. However the Silver bullion faithful appear to have wasted little time in using the correction as an opportunity to add to their positions throughout May as Silver bottomed around $35 per ounce. Last week that faith appeared to be rewarded as Silver passing $37.50, showed signs of taking flight once more.

And take flight it might. Because as many Silver investors will no doubt be aware the only thing that has changed for the Silver market since the correction, is that the weak hands and speculative money has been removed from the market.

The CME raising of margin requirements, which was widely blamed for triggering the fall, had the effect of chasing away the hot money that had driven Silver prices too high, too fast. Some investors are now betting that now much of that unhealthy influence is gone, it should make for a less bumpy ride.

With the theme of Eurozone debt driving currency markets right now, and in turn precious metal quotes, the stage could be set for further upside. This is illustrated by Gold reaching new highs in Euros and British Pounds this week. The potential gains for precious metals, Silver and Gold particularly, is elevated right now on the back of Greek debt concerns, but it can be argued that a more widespread contagion of peripheral Eurozone is not yet priced into either the Gold or Silver markets.

The main risk for European policy makers is that of contaigon. The prospect of the amount of damage to the whole european banking system that a Greek Default or restructure would cause is too horrible for policymakers to contemplate. To prevent such an eventuality is likely be beyond existing bail out funds avalable and could cause policymakers to be ordering more paper and ink for Euro printing presses, and lots of it at that.

The question for silver and gold investors is would such a big bite of Euro debasement cause flight to the dollar, which might actually hurt precious metal prices. Or would all global currencies, including the dollar be forsaken for the safe haven property of precious metals?

As for retail investors, many are taking the opportunity to buy coins and bars at lower prices, while the reduced number of retail buyers in the space is leaving premiums marginally lower.


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