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Best start to the year for silver prices since 1983

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January 22, 2015 - 9:34am

So goes January, so goes the rest of the year. That’s what silver investors will be hoping after the best start to the year since 1983 with prices up 15 per cent. Silver has still to re-test its all-time high of $50 an ounce set back in 1980. Today the price hovers at around just $18, some 35 years later.

Silver prices move in tandem with gold and are leveraged to the upside and vice-versa. The three-year correction in precious metal prices took the silver:gold price ratio to above 70, a historically high level, leaving considerable room for silver price outperformance as the gold price moves back up.

Swiss action

That’s what the yellow metal has been doing this year, particularly since the Swiss National Bank decided to de-peg the franc from the euro. That send the gold price surging from $1,220 to $1,305 an ounce. If 2015 proves to be a good year for gold prices, it will be a great one for silver.

The most volatile of metal prices seems itself to benefit from instability in financial markets. A close at $18.41 would leave the metal 20 per cent up from its closing low of $15.33 in November, the usual definition of a bull market.

Gold prices should gain from the money printing by global central banks, so the trillion-euro in quantitative easing from the European Central Bank ought to put prices on steroids, although much of this QE may already have been anticipated. That was of course also why the SNB called it a day on pegging the franc to the euro.

The supply of silver is tightly constrained and falling copper prices are likely to be a problem this year as silver is produced mainly as a byproduct of mining zinc and copper. If less of these metals is mined then there will be less physical silver available to meet growing demand from investors.

Contango anybody?

However, the price of silver is set in the futures market and exactly how the price dynamics will play out there is hard to fathom even for the experts. There is a school of thought that claims silver prices have been held back artificially for so long that at some point the market will break down and give way to a massive catch up in prices.

 

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About Peter Cooper / Commentary Author

Peter Cooper is the editor and publisher of the ArabianMoney investment newsletter and the popular financial comment website www.arabianmoney.net.

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