Precious metals investors are trying to figure out if silver prices are next heading to $50 an ounce or $30 as the metal falls 4% on Wednesday morning amid news of progress on the U.S. debt ceiling.
Silver exchange traded funds crashed this spring partly on tougher margin requirements for futures contracts that removed some of the speculative froth from the market. However, silver ETFs are perking up again as global debt jitters and industrial demand help boost prices for the metal.
Silver prices climbed above $40 an ounce earlier this week but were pulling back on Wednesday. Futures slipped below $39 in morning trading.
Fund manager Eric Sprott believes silver prices may continue to climb and bring the gold/silver ratio back down over the next five years as the global debt crisis continues to worsen, according to The International Business Times.
The gold/silver ratio fell to multi-decade lows earlier this year as silver outperformed the yellow metal, but the ratio hit bottom this spring and bounced. The ratio recovered in May because silver fell much harder than gold in the spring correction in precious metals. Higher margin requirements added to the ferocity of the sell-off in silver. The chart below shows the ratio of a gold ETF versus a silver ETF.
Chart source: StockCharts.com.
Sprott projects silver prices will cross $50 an ounce by the end of the year, arguing that confidence in global currencies is receding, while industrial demand is also expected to boost silver prices.
The metal was stopped in its tracks in late April right around $50 an ounce, silver’s nominal all-time high.
“Silver is clearly benefiting from its greater affordability, attracting investors who are keen on hard assets during these uncertain times,” according to UBS in a note, reports Jan Harvey for Reuters.
The Silver Institute estimates that industrial demand for silver will jump to 666 million ounces by 2015, or a 36% increase from 2010. However, a lot of that growth is dependent on Asia and global economies.
Additionally, if inflationary pressures in developed countries begin to show signs of running higher, observers expect gold and silver prices to rise even more.
Silver ETFs include:
- ETFS Physical Silver Shares (NYSEArca: SIVR)
- iShares Silver Trust (NYSEArca: SLV)
- PowerShares DB Silver Fund (NYSEArca: DBS)
For more information on silver, visit our silver category.
iShares Silver Trust
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own SLV.