Silver hit a new high (spot: 31.22; Comex: 31.28) in the first week in 2011. However, price decline sharply in tandem with gold and other commodities as the US dollar strengthened. Currently trading at 27.3, the benchmark silver contract has been down more than -10% in 3 weeks. While further correction cannot be ruled out, divergent US coin sales and ETF investments have blurred the metal's outlook in the near-term. US Mint said that coin sales jumped to a record high of 4.59M oz in January, +7.75% above the previous record set in November 2010. In contrast, silver holdings in ETFs began 2011 on a weak note.

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The impressive performance in silver last year was mainly driven by robust investment demand while fundamentals were rather weak. Concerning the demand/supply balance, traditional silver fabrication demand had declined steadily over the past few years on sharp decline in demand in the photography sector. This pushed the market into a structural surplus. Oversupply will continue in 2011 and the surplus is expected to be absorbed by investment demand. Hochschild Mining, a Latin American precious metals group said it produced 26.4M of silver and silver equivalent last year, in line with its target of 26.3M oz. The company also said it expects to produce 22.5M oz in 2011. Mining expansion is the focus and the exploratory budget is increased by +40% in 2011. Meanwhile, Fresnillo, the world's largest primary producer of silver, announced its silver production rose modestly to 42.1M oz 2010. The company expects to raise output to 44M oz this year.

The gold/silver ratio fell below 46 on December 31 before slowing recovering to above 48 in recent days. Indeed, over the past decades, moves in gold/silver ratio below 46 proved to be unsustainable. In the near-term, gold/silver ratio may oscillate around the current level but whether gold or silver will perform better this year depends on macroeconomic developments and investment demands.

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Copper price rebounded after severe selloff sent the metal to a 1-month low of 9281 yesterday. We expect price will consolidate around current level until Chinese New Year is over. Indeed, fundamentals in copper remained strong. The International Copper Study Group (ICSG) forecasts the copper market to be in a 435K ton deficit this year. Meanwhile, World Bureau of Metal Statistics (WBMS) said that the global copper market was in a deficit of 97K tons in the first 11 months of 2010, compared with a surplus of 276K tons in the same period in 2009.