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From the GoldMoney Dealing Desk --
The silver price continues to
bump up against $36 per ounce, but cannot as yet manage a convincing finish
above this level. Silver has recovered impressively from last week’s
sell off and trading volume is picking up, but bulls should still be wary of
the possibility of a sharp correction.
Buying pressure remains strong
on the part of small investors, who are still pressuring government mints for
coins. Last week’s silver commitments of traders (COT) report also
showed a slight increase in buying on the part of commercial end-users. But
of more significance was news that Asian sovereign wealth funds are
continuing to accumulate silver as part of their precious metals portfolios.
The same leaked US diplomatic
cable that told of Iran’s determination to buy
gold also
reported comments by a Qatar Investment Authority insider who said that his
country was interested in accumulating both gold and silver. This leak
coincides with reports of the 245.6 tonnes of
silver imported by China in February. Though most of the demand from China is
consumer driven, rumours persist that the Chinese State Administration
of Foreign Exchange – which manages over $3 trillion of currency
reserves – is diversifying into silver.
China used to hold significant
reserves of silver, owing to its historic mandated role in the nation’s
monetary system. As late as the 1930s, China remained on a silver standard as
opposed to a gold standard, and the Chinese word for “bank”
literally means “silver house”. Until 2002, however – and
showing the foresight and good sense of monetary authorities the world over
– the Chinese authorities were selling the nation’s official silver
stocks – at under $5 per ounce. But China has recently been a big
silver buyer, importing 3,475,394 kilos in 2010, a four
fold increase from 2009’s total. It seems highly likely that
some of this silver is forming part of official monetary reserves, as a means
of silently diversifying away from the US Dollar.
However, since the start of this
silver bull market around 2002-03, every big price rally has been followed by
a significant price correction. Corrections in 2004, 2006 and 2008 following
big rallies averaged 41 per cent, and there hasn’t been any correction
approaching this magnitude since 2008. So despite silver’s impressive
resilience in the face of strong selling pressure last week, investors and
savers should remain aware of the possibility of a significant, temporary,
price decline
Goldmoney.com
All data and quotes sourced from Reuters.
Published by GoldMoney
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