By Melissa Pistilli-Exclusive to Silver Investing News

Although the markets suffered further declines, safe-haven silver fell as low as $12.70/oz on Monday morning. Analysts, like Michael Gross with OptionSellers.com, are attributing this latest price dip to profit-taking by hedge funds and speculators looking to make up their losses and meet margin calls in other areas of the market.

If you thought the global recession couldn’t get any worse, you haven’t been paying attention. Or you’re dangerously over optimistic. On Friday, reports came in that the US economy had contracted an unexpected 6.2 per cent over the last quarter of 2008, the worst since 1982. Later this week, the US jobs report is expected to show a loss of 648,000 jobs for February.

Monday morning, the U.S. markets tanked. The Dow Jones industrial average fell 2.9 per cent in just two hours into the session to 6842.54, its lowest point in almost 12 years. The S&P 500 dropped 3.4 per cent to its lowest trading level since November of 1996. The Nasdaq also fell 2.5 per cent.

The markets in other parts of the globe fared poorly as well. In Asia, the Nikkei lost 3.8 per cent and Hong Kong suffered a nearly 4 per cent decline. In Europe, France’s CAC dropped close to 3.5 per cent and Germany’s DAX lost 2.9 per cent. The MSCI world equity index, which measures global share prices, shows that worldwide markets have not suffered this badly since April 2003.

Also affecting the markets are deepening worries over increasing U.S. debt. The U.S. government has promised $9.7 trillion towards economic rehabilitation. The government has also said it will give the faltering insurance company American International Group, another $30 billion in aid after it announced the largest quarterly loss in U.S. history. Obviously, these sorts of numbers fuel inflation worries.

The esteemed Warren Buffett has recently warned that increasing reliance on government bailouts will eventually prove disastrous. “In poker terms, the [US] Treasury and the Fed have gone all in. Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel. These once-unthinkable dosages will almost certainly bring on unwelcome after-effects. Their precise nature is anyone’s guess, though one likely consequence is an onslaught of inflation,” said Buffett.

So, while we may be witnessing a drop in silver prices from the most recent rally, silver is likely to rebound and move even higher as global market conditions worsen. “If enormous doom and gloom overwhelms financial markets, if you see investors are incredibly bearish and the Dow trading at 5,000, silver could get as high as $24,” said Jeff Christian, managing director of CPM Group.

Philip Klapwijk, chairman at precious metals research company GFMS Ltd., expects silver will reach $18/oz this year, outperforming gold as a cheaper investment alternative. The silver price is currently at its biggest discount to gold in over 13 years.

As bargain-hunting investors flock to safe haven assets, “silver will have a nice catch-up rally,” said Peter Sorrentino, manager at Huntington Asset Advisors. “There’s a flight to precious metals as a storehouse of wealth. Silver got left behind and it’s been closing in quickly but there’s still a performance gap.”

Patience is the key. “Silver’s woken up recently, but it isn’t flying yet,” said Chip Hanlon, president of Delta Global Advisors Inc, who expects silver to reach $20 in the near future. “As gold goes higher, it gets psychologically harder to pay for gold. So people turn to silver.” 

Comment

Tweet