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Silver shines bright, to climb steadily in second half

July 14, 2011


SINGAPORE/MUMBAI: Silver prices, deeply dented but unbroken by a rout in May, will climb steadily through the second half of the year as investors buy the metal as an alternative to expensive gold.

Despite a swoon following a 60 percent rally to a peak in April, silver continues to lead the precious metals complex with a gain of 24 percent so far this year, outstripping gold’s rise of 11 percent, and retains allure for inflation-wary investors.

Silver , notorious for its price volatility, stung many investors with a drop of 33 percent over six sessions in early May from a record of $49.51 an ounce on April 28.

Silver prices have held above $32 since mid-May, and are set to move higher in the second half of the year, supported by low interest rates in the United States, a sovereign debt crisis in the euro zone and inflation concerns in key emerging economies such as India and China.

“Lingering fears of a sovereign debt crisis, inflationary pressures and a slowdown in the recovery continue to drive investors to look for a safe haven and hedge against uncertainty,” said Ong Yi Ling, an analyst at Phillip Futures.

“When gold hits a record high, investors will once again search for a cheaper alternative to gold, and silver may be the best candidate.”

On Thursday, spot gold extended its winning streak to a ninth session, hitting a record top of $1,589.56 an ounce, while silver extended a rise of 5.6 percent from the previous session to $38.38.

NOT LOSING MOMENTUM ANYMORE Phillip Futures expects silver prices to reach $43 in the second half of the year, while Barclays Capital expects prices to reach $40.2 in the third quarter.

“Silver is looking reasonably good in the second half, as prices have been basing around $35, and is not losing momentum any more,” said Mark Pervan, Global Head of Commodity Research at ANZ.

Trading volumes for silver on the Shanghai Gold Exchange, China’s flagship precious metals bourse, shot up to 2.257 million kg on May 13. While they plunged to 475,056 kg on July 13, that is still more than three times the average daily volume of 151,966 kg last year.

“Obviously there is strong support at current levels from physical demand — mainly investment demand,” a Tokyo-based trader said. “Prices below $35 should be a comfortable level for people to buy.”

The silver growth story will be underlined by continued Asian preference for the physical metal and rising demand for exchange-traded funds, analysts and traders said.

“Physical silver bar hoarding will continue to gain momentum, because Asian, in particular Chinese, investors have a preference for physical rather than futures-based holdings in precious markets,” said Pervan of ANZ.

The outflow from silver-backed exchange-traded funds is also likely to be coming to an end, and the possibility of rising ETF demand will further buoy silver in years to come, Pervan said.

ETFs let investors profit from price rises without owning physical material and have become popular among Western investors. Growth of such funds has helped gold prices take off, as the increasing holdings add to the demand for bullion.

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