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Silver prices have fallen from the historic highs of 2011 and could rebound to $30 when it will start attracting all types of investors. Right now movements in the segment are so weak, the white metal doesn't look app..

26 Jul 2012

By Sreekumar Raghavan
I read a news item the other day about a survey conducted among women in UK regarding their appearance and attitude towards being female. It said that women felt sexiest at the age of 28 and their self confidence peaks at the age of 32. In the Indian context though, girls are considered to be at their best around 16-17 years and hence the term, ‘sweet 16’ .

In commodities, there is a precious one hovering around 26-27 not attracting the right buyers…? You guessed it right : It’s Silver. When it came near the historic highs of $50 last year people were too eager to sell, not buy and right now people aren’t buying at all. May be it looks so cheap!

Going through the 10-years, 5-year, 6-months, 3- month Silver charts, there is no room for optimism at all. For the 10 year period- a bearish reversal pattern is seen clearly and current prices are below 100, 200 day moving averages. In the five year charts too, bearish reversal pattern is seen. (See 10 Year Silver chart below)

Fundamentals not supportive
US based Silver Institute says that silver fabrication demand fell 1.5% in 2011 to 876 Moz while use in industrial applications fell 2.5% to 486.5 Moz. Silver production rose to a fresh record to 761.6 Moz (23, 689 t) while Silver mine production rose by a modest 1.4% to 761.6 Moz largely due to gains from by product gold and lead/zinc mining.

Silver fundamentals are quite weak. But average prices in 2011 was $35.11 more than double the $14.67 average price achieved in 2009. World investment (including implied net investment, silver bars and coins & medals) produced another historic high total last year of 282.2 million ounces (Moz), the equivalent of approximately $10 billion on a net basis, itself a record high, according to the Silver Institute.

When can Silver’s appeal rise
At $27.20 levels silver is not appealing to anyone. According to Christopher Lewis of FX Empire, “with the lack of motion in it (silver) presently we aren’t comfortable getting involved yet. We need to see some type of bullish candle in which to even consider it, and we do recognize the fact that the $30 level above is massively resistive as well. We feel this market will be very quiet in the meantime, as we are in the height of vacation season for most traders. As such, we are observing but not trading.”

Renowned Indian financial astrologer Rajeev Prakash Agarwal is hopeful of silver reaching a level of $30 when it’s appeal will start rising among investors. “Based on my calculations, silver will definitely have sufficient possibility to touch $30-50 by end- 2012. So Indian investors must be ready to buy Silver at dips,” he said. Before 20th August, a sharp fall in Gold & Silver is seen. So that'll give a great opportunity to buy for positional time frame, he said. (His forecasts in Commodity Online)

The US Commodity Futures Commission (CFTC) Commitment of Traders (COT) data for week ended July 17, shows hedge and managed funds increasing their longs positions in silver to 20351 lots while open interest as a whole had declined. And week to July 3 long commitments of large trades had increased by 1018 lots.

 
 Chart Courtesy: Monex Precious Metals


(The author is Chief Commodity Strategist at Commodity Online and comments, suggestions on this topic may be sent to editor@commodityonline.com)


 


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