Silver price flirting with important resistance level

2012-FEB-22

As a result of the current bull market in precious metals, most silver producers are reporting solid profits. Market observers believe that in the years ahead silver demand will grow, resulting in continuing price rises in the metal. Demand from the medical and industrial sectors is growing steadily, while silver production as a by-product of lead and zinc mining will decline significantly in the future.

The political situation in some major silver-mining countries is also raising supply concerns. In Mexico, the government's war against the country's drug cartels is becoming ever bloodier, while in Peru strikes by miners have caused serious production disruptions. Many promising lead, zinc and silver reserves have been discovered in Peru in the last decade, thus raising expectations on the part of industrial users of silver that new Peruvian supply will curb gains in the price of the metal. New mine ventures in Peru have increased – although growing tension between local residents and mining companies has become more evident.

In 2010 silver – as well as palladium – was one of the best performing assets available to investors. In April of 2011 and for the first time since 1980, silver hit a record nominal price high of $50 per troy ounce – though in subsequent months silver suffered significant declines. Chinese and Indian investors are increasingly buying silver as a hedge against inflation. This is especially true for the average investor who cannot afford to buy lots of troy ounces of gold.

With the exception of 2008, silver's technical chart shows that the white metal continues in a long-term bull market. After enduring a correction phase that started in the spring of 2011 and saw the silver price drop as low as $25 per ounce last December, silver now has great chance at restarting its upward trend. Technical analysts see important resistance at the $35 per ounce mark. Should the white metal break through this level it would open the way for a trending move higher. The silver price could regain its high of $50 per ounce and even hit new record highs at around $65 to $70 per ounce before enduring another meaningful correction.