The price of silver continues to track inversely to the strength of the US economy, as it has done throughout this year. In turn, the US economy is linked to the amount of quantitative easing that is applied to continue the recovery. The threatened scaling back of the US$85 billion per month currently being injected sent the price of silver back down this week.
The Dow Jones Industrial Average has continued to climb through the year, in some respects defiantly and despite continuing mediocre unemployment figures. It seems that the markets have low expectations after the economic crisis, so any positive news becomes an excuse for a rally in the stock market, and consequent fall in the silver price.
I continue to be long-term on bullish on silver prices, and consider that the recent upturn may be the start of a decent upward run. It is well-known that silver prices have been manipulated in the past, and are probably continuing to be influenced by the large investors. In a sense, the current downtrend is simply holding back an increasing pressure to price silver at a realistic level. I am certainly long at this current time within my trading account.
Silver has always been considered an acceptable substitute for paper money, more so than gold, because silver is more flexible for smaller amounts. This is part of the reason that price manipulation is considered necessary, to maintain confidence in the fiat currency which is so essential to all countries of the world.
The fact of the matter is that the price of silver should go up because of increased demand, whether or not economic recovery is successful. If economic recovery falters, then silver is one of the go-to metals that provides value which will not be hit by monetary inflation. On the other hand, if trade becomes brisker then silver will be in demand for industrial processes, for which there are few substitutes.
Further upward pressure comes from the fact that silver is being used up in these processes, and production has slowed. 70% of silver is produced as a byproduct of base metal extraction. The world's largest silver producer, KGHM Polska Miedz, from Poland, is looking at a reduction in output of nearly 20% in 2013 compared with 2012.
Timing is the issue, but it appears that the market may be ready for a turnaround, and the uptick in price which you can see in the chart above in August may be the start of a long run which we would expect to be stronger than any parallel run in gold.
By Marcus Holland from FinancialTrading.com.