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The price of silver hit a 10-week low Monday dropping as low as $12.43 an ounce on a stronger dollar, weaker copper and lingering economic concerns.

Dollar strength has an adverse effect on inflation-hedging; fears in the industrial sector also dampen investor appetite for silver.

“There had been a lot of talk about inflation, inflation, inflation due to all the government spending, but none of that is going to happen until you have economic growth,” said Altavest analyst Tom Hartmann. While we have yet to see inflation at its worst, the threat is still very real.

Profit-taking after the white metal’s rally early last month to $16 has also been blamed for the precious/industrial metal’s recent losses. Others point to the likelihood of worried investors looking to raise cash.

Monday’s IMF report probably didn’t help, either. The IMF upped its 2009 projected economic contraction rate to 1.4 per cent from 1.3 per cent on worries that the expected economic turnaround is not as near as previously hoped. Rather than in the second half of this year, it seems economic recovery will have to wait until next year. On the plus side, the IMF has revised its 2010 expected expansion rate from 1.9 per cent to 2.5 per cent.

On Tuesday, silver was in more positive territory and flirting with $13 an ounce early in the session.

Precious metals prices are riding on advances across the commodities sector, especially from oil and copper. Despite the IMF report, some hope of global economic recovery remains as seen in rising global equities today.

However, pullbacks in precious metals prices are expected in the summer months and are likely to remain flat until August, according to Scotia Capital.

The fall and winter historically bring rallies for both gold and silver, and this year will be no different. “With a small increase in investor and physical fabrication demand, prices will move much higher during the seasonal rallies of August-September and November-February,” said Scotia Capital geology analyst David Christie.

Commodities Sector Improving

Trends in commodities prices will continue to influence silver prices in the short-term, as well as over the long-term.

Despite the shadow of doom and gloom still hanging over the markets, there seems to be light at the end of the tunnel for the commodities sector. Many are hopeful that the approaching recovery will stimulate commodities prices to the upside once again.

If you ask financial guru Jim Rogers, he’ll tell you “the best place to be is in real assets commodities, because if the world is going to recover, they (commodities) will recover first because of the shortages,” said Rogers in a recent ET Now interview. “If the world economy is not going to recover, they are still the best place to be, because governments around the world are printing huge amounts of money.”

According to Scotia Capital, commodities prices are on track to spike in the coming months. “We believe that over the next month investors should move to overweight gold and silver equities in anticipation of higher commodity prices,” said Scotia’s Christie.

A weakening dollar this fall and increasing inflation worries early next year are expected to contribute to stronger commodities prices.

GSJB Were expects minimal moves to the downside over the summer holiday and recommends that for now dips in commodities should be seen as an opportunity for investors to increase their holdings ahead of what the broker anticipates will be outperformance in the sector over the next 12 months.

As far as long-term precious metals prices are concerned, Canaccord Adams expects precious metals prices to reach new highs next year. Canaccord analyst Wendell Zerb has set his peak price for gold in 2010 at $1,100 an ounce with a peak price for silver at $18 an ounce.

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