By Russell Glaser
Silver prices continue to outperform other commodities as spot silver has appreciated over 70% this year.
For a majority of the year, spot silver prices were relatively flat, never trading below this year’s opening price of $16.83, nor moving higher than $19.80. However, beginning in August, the price of spot silver charged higher to a record price of $30.69.
How can these gains be analyzed?
One school of thought says the gains in the commodities market are a product of a recovery in the global economy. As the economies of the developed nations of world begin to grow, such as the US, Great Britain, China, and Japan, demand for raw materials have increased along with industrial consumption numbers
As more investors have looked to hard assets to provide yield, this has helped to drive up the price of silver. The rise in silver prices coincides with record inflows into ETFs. Investors are looking for new ways to diversify their investments have piled into commodity ETFs in record numbers. The largest silver ETF has booked new investments over $1.1 billion this year alone.
Some of the price appreciation can be attributed to speculators driving up the price of commodities worldwide. Crude oil prices are up 27% with an end of year rally in November and December making up a majority of the gains. Spot gold prices are also up sharply this year gaining 26% on a steady rising trend.
Another reason for the rising price may be inflationary concerns. Following the economic recession, central bankers lowered interest rates around the globe and provided liquidity in mass in order boost economic growth. This has created an environment of ultra-low interest rates that some economists believe interest rates have been held too low and liquidity provisions held in place too long, possibly creating the next asset bubble similar to that of the US housing crisis. The environment of high liquidity and loose monetary policy is reinforced by the Federal Reserve’s decision in October to begin a second round of quantitative easing.
This theory has its merits with the sharp appreciation in the price of and gold and the uncharacteristic rise in the price of spot silver, though technical studies show the price of silver may have further room to move higher.
As such, it may be premature to call a market top. Monthly stochastics shows no sign of diversion and the rising trend line on the daily chart has held since late August and has proven to be a solid support. An initial target for spot silver should be for a retest of the all-time high in early December at the price of $30.69.
Forex Market Analysis provided by ForexYard.
© 2006 by FxYard Ltd
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