By Melissa Pistilli-Exclusive to Silver Investing News

In early trading, markets plunged worldwide on increasing fears that major recession is deepening around the globe. “Stock, commodity and many currency markets internationally are in meltdown on panic selling,” said Gold and Silver Investments’ Mark O’Byrne.

Stock market losses across the board have forced investors to sell off precious metals to raise cash. Gold and silver lost another 4.3 per cent and 8 per cent respectively this morning on “massive deleveraging and wholesale panic selling in financial markets,” said O’Byrne.

The precious metals along with other commodities are also taking a hit from dollar gains. “We’re still seeing margin-call liquidation and the dollar strengthening,” said Heritage West Futures commodity analyst, Ralph Preston. “The dollar is firming and pushing commodities down. The dollar is being perceived as a safe-haven play.”

It may seem bewildering to most that at a time of such economic upheaval the historical safe haven investments, the precious metals, are markedly down while investment flows into the dollar. Ira Epstein offers an explanation in his weekly metal report.

Like other analysts, Epstein is surprised “that the currency that created this whole mess became the beneficiary of the meltdown.”

So, what’s happening? According to Epstein it involves the manner in which the U.S. is managing the credit crisis and the benefits the nation incurs from falling energy and commodity prices. “Given that we import most of our energy needs,” says Epstein, “the lower pricing of energy is like a tax credit. The sheer size of our economy insulates us to a degree better than that of foreign countries.” The belief seems to be that because the U.S. is the world’s largest economy it “is in a better position than competing economies to weather the current financial storm.”

Epstein acknowledges that the dollar is far from “a pillar of strength.” It’s just that “it has been beaten down so much that given today’s circumstances and the slowdown in competing economies” that now it is in favor.” A stronger dollar “coupled with falling commodity prices is taking all metals to lower price levels.”

How will price declines in the precious metals affect the mining sector in the near future? Epstein says we can expect “to hear about production cutbacks as the cost of production and lack of demand will converge to reduce mining output.”

Despite the depressed price of silver in the paper market, there are still other indications that the investment demand for silver is still strong. The latest figures out Monday from the world’s largest silver backed ETF, iShares Silver Trust, show its holdings at a near record 6,895.58 tonnes.

Another example is the increasing tightness in the physical market for both gold and silver. “The tightness,” said O’Byrne, “is spreading from the small coin and bar market up to the larger bar market and premiums on larger bars such as 5 kilo bars and 100 oz bars are also increasing.”

Although silver is a much smaller market than gold and tends to fluctuate “very strongly”, it has become relatively inexpensive and many are “prepared to invest in it,” said Tony Coleman, managing director at Auckland Bullion Traders. “It’s quite possible to double your money in it,” he said, “even triple it for not a lot of work . . . but it is more of a speculator’s market.”

Preston says Heritage West Futures is “seeing buyers come in at these prices.” He believes this period of lows is “going to be a buying opportunity for people who missed the first commodity run that began in 2001.”

First Majestic announces third quarter production total

First Majestic Silver Corp. [TSX: FR] announced Thursday that third quarter production totaled 840,918 equivalent ounces of silver. The production rate for this quarter decreased 34 per cent from second quarter production because three separate operations in Mexico were hampered by an uncharacteristically heavy rain season. These operations are now back on track and First Majestic says it expects to “deliver record fourth quarter production.”

President and CEO Keith Neumeyer had this message for investors:

“On a more positive note, with silver prices at a temporary low, it’s not a bad time to be selling less of our silver. Also, I would like to commend our staff at each mine in working through these unavoidable challenges. Each mine has recovered remarkably well; cleaning up all the debris and making repairs where necessary. Furthermore, steps are being taken in advance of the 2009 rainy season to avoid problems in the crushing circuits caused by excess water.”

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