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By Melissa Pistilli - Exclusive to Silver Investing News

Silver prices fell more than 5% to $12.68/oz this morning on the heels of tumbling crude prices and a stronger U.S. dollar.

Oil is the main driver behind today's commodity declines, says Frederic Lasserre ^[2], head of commodities research at Societe Generale. Oil installations in the Gulf of Mexico were spared the wrath of a Category 4 hurricane as Gustav weakened to a Category 2 before slamming into the Gulf region and has since been downgraded to a tropical depression. Consequently, oil prices took a dive bringing precious metals prices down with them. Gold fell below $800/oz and platinum plunged 7% to $1,385/oz.

This morning, crude oil lost nearly 9% from Friday falling to $105.46 a barrel. The sharp decline along with growing concerns over the economies of Europe and Asia gave the dollar strength. The dollar soared to its highest level against the euro in nearly seven months, further weakening precious metals markets.

Silver and the other precious metals experienced healthy gains last week as oil markets expected the worst. As the storm approached, workers from over 70% of the region's platforms and rigs were evacuated. Twelve out of 32 refineries were shut down Monday and ten others were moved. According to Monday's U.S. Department of Energy ^[3] report, 96.2% of oil production activities (1.25 million barrels of crude per day) and 82.2% of natural gas activities were suspended as Gustav made its way to the Gulf.

Once reports started coming in that Gustav was much less destructive than previously thought, oil prices began to shake off earlier gains. "Early assessment that I have heard this morning is that some (production equipment) could be back on line as early as this evening," said Neal Dingmann ^[3], senior energy analyst at Dahlman Rose & Co.

Although it seems Gustav made little damage to the Gulf's energy infrastructure, some analysts feel such a conclusion is a bit hasty. "Though I sure hope that the production region dodged a bullet - as many market players have been saying - I think this mindset may be a bit premature," said Jim Rouiller ^[3], senior energy meteorologist at Planalytics. The firm predicts how weather will impact businesses. "It will take some time for all the oil and gas companies to send people out for damage assessment," said Rouiller. "Many times before, this was the initial mindset only to be followed by bad news, discovery of damage."

What's Next for Silver?

Last week, the Ira Epstein & Company Weekly Metal Report ^[4] predicted that Hurricane Gustav would not be as destructive to Gulf energy infrastructures as many had thought. As expected, the premiums built into oil, gold and silver prices were shaken off once Gustav proved less cataclysmic creating a price break for silver.

According to the report, "The big question now is what propels the markets going forward after Gustav."  Ira Epstein & Company is looking towards "a sustained year end rally to develop off of demand, not hurricane fundamentals." The technical outlook shows silver "owe[s] a rally up to its 18-Day Moving Average of Closes." In terms of the seasonal outlook for silver, "this next price break is the washout that should produce a sustainable move up." Ira Epstein & Company still remain positive that the bullish trend in silver has not seen its end and will recover during the winter season.