After weeks of sailing on
troubled waters, the silver market is giving mixed signals. Analysts are
struggling to discern whether or not the metal will be able to consolidate
above resistance at $28.50, or whether silver is still in danger of further
sell-offs. Much will depend on developments in the US dollar market and the
global economy – a view shared by Randy Smallwood, president and CEO at
Silver Wheaton, a Vancouver-based silver-streaming company.
The euro crisis has been a big
depressing influence on commodity markets in recent months. With the
continent’s debt crisis getting worse by the day, many investors are
being drawn to the dollar. Most are confident that the eurozone
is in great danger. Despite record-low yields, traders are continuing to buy
Capital is also slowly moving
out of China. The country's economic model – based on generating export
surpluses – could be heading for difficulty. An increasing number of
Western companies have announced their intention to move production out of
China. Bureaucratic fees were increasing to a point where many businesses had
ceased making profits.
As Smallwood notes, the increasing demand for the dollar
is having a negative effect on silver and other precious metals' price
development. But the long-term outlook for the white metal remains excellent.
On one hand silver can be recycled at a much lower cost than gold. And demand
from industrial end users will continue to grow in the coming years, which
should have a positive effect on the price.
Since reaching its $50 high in
the spring of 2011, the silver price has almost halved. Small and medium size
silver producers are having difficulties financing themselves without
compromising their capital. European banks have been silver mines' main
financiers, but now these banks are struggling with growing financial
problems and are trying to reduce their own balance sheets. Many a silver mine could be harmed by this.
Just recently Aquarius Platinum announced that it will be temporarily halting
production at its Marikana platinum mine, located
in northwest South Africa. According to the company, current platinum prices
have rendered production at the mine unprofitable. Similar production halts
in the silver sector would be painful in the short term. Nevertheless, a drop
in supply would most probably have a positive effect on long-term prices.