Silver Investing News

By Melissa Pistilli-Exclusive to Silver Investing News

Silver has managed to remain above the crucial psychological $9/oz level for the past week, holding steady above $9.20/oz.

Chintan Karnani of Insignia Consultants believes Friday’s close was significant for both precious metals. “Technically, gold and silver are in a neutral zone with a slightly bullish bias,” he said.

In order to maintain a “bullish zone”, silver must hold $9.55/oz. According to Karnani, $9.85/oz and $10.55/oz are the key intra day resistance levels. Silver’s “downside will be limited this week” if prices can hold above $8.80/oz.

Although the term “bull” is still being thrown around by precious metals analysts, it is understandable that many investors find it hard to remain positive. But keep in mind the fundamentals for a strong comeback are still in place. The reasons why the silver price has fallen drastically from the highs it once boasted are many, but a trend reversal is still in the works.

The dollar’s overdone display of strength and the downward pressure it has placed on the precious metals is bound to unravel. Lower oil prices, also placing pressure on gold and subsequently silver, won’t last forever once energy demands increase as projected by the International Energy Agency.

The silver price, much like most commodities, became a victim of massive hedge fund selloffs as investors and fund managers made a dash for cash in October. Once the deleveraging by hedge funds has worked its way out of the market the silver price should see some substantial relief.

A trend reversal in the silver price is becoming more and more likely as the world’s central banks continue to increase liquidity in an effort to loosen tight credit markets, which will undoubtedly lead to rising inflation.

A weak dollar and higher inflation will bring the paper markets more in line with the physical, which has witnessed unusually high premiums and strong buying. “Retail investors are in no doubt that gold and silver is what they want to hold in these troubled times,” financial journalist Peter J. Cooper said. “They are like the people who were first in the queue for the housing booms of the 2000s.”

Once the silver price in the paper market recovers, junior mining stocks are bound to follow. Precious Metals Warrants editor Dudley Pierce Baker believes an unexpected event, such as “investors in the December Gold & Silver contracts actually calling for delivery”, will send junior shares soaring overnight. Gains of 25 per cent, 50 per cent or more in junior stocks in one day could be possible, he added.

This reversal may happen so quickly many investors will be unable to react in time and subsequently be left out. “The only place to be, in our opinion,” said Baker “is in gold and silver (bullion, if you can find some), mining shares (yes, they will come back) and long term warrants on selected mining shares.”

MAG Silver Corporation

On Monday, MAG Silver Corp. [TSX:MAG] released its unaudited financial results for the nine month period ending September 30, 2008. As of September 30, MAG held a strong cash position at $59.1 million (Canadian dollars).

The company’s major focus is on projects within the Mexican Silver Belt, including a 44 per cent interest in a joint venture with Fresnillo on the Juanicipio property and a newly identified silver, lead and zinc zone on its 100% owned Cinco de Mayo property.

In a recent interview with The Gold Report, Exploration Insights‘ Editor and well-known geologist Brent Cook listed MAG Silver as one miner he “like[s] a lot.” Of their Juanicipio joint venture he said, “the asset is probably the highest-grade silver discovery in decades. It averages over a kilo a ton, it has some 240 million ounces of silver, and it’s open to further discoveries.” The property is adjacent to Fresnillo’s operating mine and there are plans to bring the project into production.

According to Cook, with silver at $10/oz MAG’s 44 per cent stake is worth $15 a share. Monday, shares of MAG were trading at $4.50/oz. Deals like this “are few and far between”, said Cook.