By Melissa Pistilli-Exclusive to Silver Investing News

Silver spot prices are suffering in the short-term under pressure from a rebounding dollar and recently diminishing fears over the severity of the economic crisis.  Following gold‘s lead, the price of silver dropped 2.5 per cent to close at $14.89 an ounce Monday.

The dollar’s continuing gains against the euro, better than expected US job data for May and falling crude prices have dented the safe-haven appeal of precious metals prices for another session.

But this most recent setback in gold and silver prices is viewed as just another dip or normal market pullback to those who believe we are witnessing the beginnings of another bull market for the precious metals.

Any short- and medium-term forecast for gold and silver will have to consider movements in the dollar; especially, as an ever-growing US deficit and unconventional monetary policies threaten to spark global inflation and fears over the dollar’s possible collapse mount.

Historically, the long-term outlook for precious metals prices has relied upon market sentiments about the overall strength of the economy worldwide and this will certainly continue to be the driving force behind silver prices, both as a precious and an industrial metal, over the next few years.

“The dynamics of a bull market [in precious metals] is still in place because of longer-term currency debasing amid liquidity addition and potential inflation,” said Bill O’Neill, managing partner at LOGIC Advisors.

The successful long-term silver investor accepts the volatile nature of the silver market and the next few months promise to be full of ups and downs as the silver price reacts to fluctuations in risk appetite, inflation fears, movements in gold, the dollar and oil, and industrial demand.

Nevertheless, the long-term outlook remains positive. “Excessive government spending and extremely large budget- deficit projections will cause metals markets to focus on the likelihood of higher interest rates,” said MF Global analyst Tom Pawlicki. “These things suggest that precious metals will benefit from investment.”

Despite signs of economic recovery, the full impact of government fiscal decisions today has yet to be realized.  “Higher long-term interest and mortgage rates could scupper the apparent green shoots of [US] economic recovery,” according to Scotia Mocatta’s latest edition of Metal Matters. “In addition, regardless of how it is funded, foreign investors seem more and more concerned that the creation of so much debt burden will devalue the Dollar anyway. As such, the financial crisis seems far from over.”

Silvercorp Metals Makes a Move for Klondex Mines

After attempts to arrange a friendly take-over proved “unsuccessful”, execs at Canadian-based Silvercorp Metals Inc [TSX: SVM] have decided to step it up by announcing a hostile $70-million bid for Klondex Mines Ltd. [TSX: KDX].

Silvercorp is China’s largest primary silver producer with four silver-lead-zinc properties in Henan province. The miner has also applied for a mining permit at its 95 per cent owned Gaocheng and Shimentou properties in Guangdong province.

Silvercorp is by-passing management and offering Klondex shareholders half a share for each Klondex share outstanding. On Monday, shares of Silvercorp were trading at $3.82, down over 12 per cent. Shares of Klondex were trading up 36 per cent to $1.73.

Klondex is a gold and silver exploration and development company whose principal asset is its wholly-owned Fire Creek Property strategically located between the past producing Mule Canyon Mine and the historical Pipeline and Cortez gold deposits in Nevada. Fire Creek is estimated to hold more than 1.6 million ounces of gold-equivalent at a cutoff grade of 5 gpt.

“We view Fire Creek as an attractive complement to our growth pipeline given its size, existing resource and the additional resource potential we believe exists at the property,” said Silvercorp chairman and chief executive Rui Feng.

Like many junior mining companies, Klondex has suffered under the weight of the global credit crunch and had to drastically cut its capital spending this year. Of course, this means that further exploration and development on the Fire Creek Property will likely be hindered or put on hold. This will no doubt be on the minds of Klondex shareholders as they ponder Silvercorp’s offer.