Silver Investing News

By Melissa Pistilli-Exclusive to Silver Investing News

The silver spot price closed down 1.63 per cent Monday to $13.89 an ounce as gold dropped on a positive dollar.

The markets are expected to be mixed during the week with a quiet Friday as both US and Canadian markets close for holidays and the start of the summer vacation season commences.

Determinants in Silver Price Movement

For the most part, silver investors have looked to the direction of the gold price and the level of inflation fear to predict movement in the silver price. However, for a better picture of where silver is headed in the long-term, it’s becoming clear that the best indicators are becoming signs of economic recovery and movement in the price of copper.

Some precious metals analysts have pointed to easing inflation concerns over the past few weeks as a major factor in silver’s recent weak performance.  Others are not concerned and believe hyper-inflation is inevitable, which is of course bullish for silver prices.

Regardless, serious silver investors are more concerned with consumption and supply/demand fundamentals than merely hedging their bets against inflation. Silver is a much scarcer commodity than gold and its industrial metal status means it will recover right along with the world economy.

Silver as Industrial Metal

There are plethora of existing and emerging uses for silver as an industrial metal, some of which include:

Electronic components                                   Scientific mirrors

Catalyst preparation                                        Solder and brazing alloys                               

Medical instruments                                        Batteries

Anti-microbial technology                               Nuclear reactor control rods

Medication                                                      Water purification products

Food packaging                                              Solar panels

Photographic film                                            Tooth fillings

Radio frequency identification technology (RFID)

Economic Recovery and Rebounding Commodities

As an industrial metal, silver is expected to rebound along with other commodities as economies around the globe recover. A look at Scotiabank’s recent Oil & Gas (up 4.4 per cent in May) and Metal & Minerals (up 4.2 per cent) indices show that commodities prices are faring much better as 2009 moves along.

There are positive signs of a turnaround in the global economy, especially out of China. And good news out of Asia is good news for North American commodities markets. According to Patricia Mohr, an economist at Scotiabank, China’s industrial sector has been picking up over the last three months.

Mohr calls it a “positive development for Canada” whose economy is largely built on commodities exports and resource-based products. These developments are no doubt positive for Canada’s mining industry as well.

Silver & Gold or Silver & Copper

As a precious metal, silver’s price movements have historically followed gold, especially in times of economic uncertainty. But as an industrial metal, silver often tracks the price of copper, especially when driven by economic growth.

Recently, those who follow silver may have noticed what Forex analyst Anna Coulling terms “subtle shifts” from silver’s correlation with gold in daily price moves to that of copper, which Coulling points out is often viewed as the “bellwether for both the economy in general and, more importantly, industrial commodities as we move out of recession.”

While the correlation between silver and gold price movements still remains, it’s not as “strong” as in the past, she notes. This is perhaps an indication that silver is moving away from its precious metal status and falling more in line with its role as an industrial metal.

If this is the case, investors would be advised to pay attention to copper’s performance, rather than solely gold’s, as it “may prove to be more influential in the next few months.”