Although everyone expected just the opposite, May was still another bad month for silver and closed with a 4% loss. Silver prices are now struggling below their six-month low and have been since May 25. They closed week at a 52-week low of $18.95 an ounce.
Silver prices’ totally irrational behaviour reminds us of when we are late to a party and all the nice guests are gone. We don’t know whether to stay or go, and we give it our best shot to have fun. But the party is over, the place looks like a battlefield, and our spirits drop to the bottom of the sea. Silver was late for the gold party the first three months of 2014. Prices tried to give us some hope in May, but it was too late, and silver dropped along with gold.
All signs indicating an upward move in silver prices
But there have been occasions when silver was not late for the party, such as the last time prices dipped into the mid-teens early in 2013, right before they spiked in April; then silver hit just under $28 an ounce. The time before that was in 2010 when silver dropped to $17.94 per ounce in August, just ahead of the 2011 price breakout to a record high of $48.70 per oz. on April 28.
Demand for physical silver in the form of bullion bars and coins was (in millions of ounces) 212.6 in 2011, 139.3 in 2012, and 245.6 last year. In 2013,demand for silver jewellery fabrication rose to a record high of 198.8 million ounces, and is expected to touch a new high in 2014; the total demand for silver also reached all-time record highs at 1,081.1million ounces, but low silver prices caused reduced mining production, and the total supply of silver for all uses was 978.1 million ounces, bringing a record 103 million ounce deficit for 2013. According to estimates there is at least a 13% rise in silver demand this year. But what about supply?
The gold/silver ratio has rested in the 50:1 range for the last several years. At the beginning of May the GSR rose to 67.3:1, the highest read since August 2010, when it stood at 67.5:1. Presently, it’s at around 66:1, which may signal an upcoming strong performance for silver.
Silver price boost triggered by low prices
The strong oxymoron of low silver prices against a rising demand that could not be met by supply last year sets the stage for a unique buying opportunity for silver investors. As it usually happens, lower silver prices lure investors in, and the buying triggers a price boost. All analysts agree that we cannot expect prices to drop any further, as the breaking of strong support barriers is both unreasonable and potentially catastrophic for the silver market. On the contrary, as silver is really great value at these price levels, everyone expects a positive reaction before the end of this month.
Where analysts disagree is on the range and the strength of the long-expected boost. A first leap to $25 per ounce seems perfectly feasible and fair.
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