Has consolidation now taken place in Silver Prices?
Silver prices enjoyed something of a resurgence this week, as traders recovered from the precipitate drops earlier in the month.
Eurozone concerns and a more bullish view on commodities from Goldman Sachs helped prices to advance back towards $38 per ounce, although they gave up some ground on Thursday morning. The eurozone debt crisis has roared back into life this week, with a Greek debt downgrade, an Italian debt warning and a Spanish election combined to make investors nervous about holding the single European currency. The crisis looks set to rumble on for some time to come, as concerns remain about whether Greece can stagger on without further aid, and whether this aid will be forthcoming at all.
The question remains whether a consolidation has now taken place in silver prices, and whether the upward trend will resume, the recent falls having shaken out latecomers to the party. If we consider the wider environment, the real drivers of silver prices appear to still be in place. Inflation is continuing to grow, and emerging market demand for both industrial and decorative silver remains. Further, central bank buying of gold will push the price higher, and this will then increase the attractiveness of silver. The ratio of gold to silver has now moved back to 40, having fallen to 32. The long-term average remains far lower than this, around 27, so further gains in gold could see even greater advances for the price of its cheaper cousin.