Silver Down on Euro Debt Anxiety
Concerns over the state of the European economy are prompting investors to seek liquidity and move away from precious metals like silver.
Concerns over the state of the European economy are prompting investors to seek liquidity and move away from precious metals like silver.
Safe haven demand has left the precious metals market and headed over to the US dollar and Treasurys as Eurozone economic woes are expected to further strengthen the greenback. But, the US is itself still embroiled in a financial crisis. How much longer can the greenback remain king?
With the Federal Reserve’s announcement on Monday, April 27 that interest rates were going to remain low, the price of silver surged up to a high near $50 an ounce, as fears of a coming United States currency inflation were reinforced and investors continue to put funds into silver as an alternative to the much more expensive gold.
A major factor influencing rising investment demand in precious metals often referenced by analysts is the quantitative easing measures employed by The Federal Reserve in an attempt to bolster the US economy. One of the effects of the Fed’s paper-printing policies is the debasing of the US dollar, which makes gold and silver attractive safe-haven buys. A reversal in that policy could have a dire impact on silver prices.
Silver ETFs have widened the playing field for many previously locked-out investors. On the flip side, this investment innovation may pose real danger: quick and dirty liquidation of silver holdings leading to a flood of physical silver onto an already oversupplied market experiencing declining levels of demand.
Alongside gold’s recent record highs, the demand for precious metals as an asset class has helped propel the price of silver to 30-year highs. Many analysts are concerned the price is trading off momentum and not off fundamentals. However, a major firm has raised their price target even higher.
While the contagion of fear in the markets is providing silver with a much needed boost this week, ongoing economic problems around the world will eventually weigh on industrial demand.
The news story getting the most attention (and causing the most hand-wringing) this week is evidence China’s economy is cooling after the nation posted a growth rate of 11.9 percent in the first quarter of 2010.
The market had second thoughts about the positive implications of the euro zone loan and worries over the depth of Greece’s debt problems resurfaced this morning, putting the breaks on the precious metal mini bull-run.
When precious metals prices got a boost from the dollar’s losses Monday, silver shot up nearly 3 percent while gold barely moved up less than a quarter percent from Friday. Silver’s industrial side is partly responsible for its continued outperformance of gold in the precious metals market.
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