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By Adam Currie — Exclusive to Silver Investing News
Silver prices gained momentum last week, continuing January’s rally on the back of successful European bond auctions which helped alleviate concerns in the Eurozone.
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Silver was among the top five performing commodities in January assisted by exceptionally low interest in the US, combined with quantitative easing in Europe, according to a monthly overview by FXstreet.
This price rally leading into last week was assisted by the fact that silver began the year at a relatively depressed level of $28.75 per ounce, having been very much out of favour during the latter half of 2011.
According to Ole S Hansen, Senior Commodity Strategist at Saxo Bank, silver will find resistance towards $36.50 per ounce which is the top of its current range as defined by the trend-line from the 2011 high.
The white metal closed up on Thursday trading at $33.90 per ounce in New York.
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Caution is key
Last week investors in silver markets were already displaying more caution than was evident in 2011. With gold reaching all-time record highs in 2011, many began looking for alternative safe havens in precious metals.
According to David Rose, London-based global head of metals trading at HSBC, many of these participants opted for silver.
“There was a feeling that if you missed the gold rally, one could be persuaded that silver looked cheap in comparison and had a lot more room to catch up, which it did very quickly,” Rose said in a recent interview relating to financial risk management.
“Unfortunately it got caught up in a speculative bubble and the collapse that we saw after silver made it up to $49 took a lot of speculators out of the market. I don’t think they’ll be back for a while,” added Rose.
Increase in M&As forecast
In a recent interview with The Gold Report, Northern Securities analyst Matthew Zylstra suggested that the discrepancy between silver prices and mining company equities had grown considerably in 2012.
Zylstra went on to point out that the Philadelphia Gold and Silver Index – an index of 16 precious metals and mining companies traded on the Philadelphia Stock Exchange – is close to the lowest level it has been since the 2008 crisis relative to gold, and that his company expected this ratio to gradually work its way back to the average.
He also forecast that merger and acquisition (M&A) activity within the silver sector is set to increase as the metal’s price continues to rise, allowing for large- and mid-cap companies to acquire smaller players.
