Silver Holding Above Key $30 Level

By Roger Baettig | December 26 2012 5:30 PM

A December sell-off in silver has left the precious metal at a key technical crossroads as the new year approaches. Prices are hovering just over $30.00 and this could be a great buying opportunity, but silver has traded through this level a number of times in the past couple of years, so there remains considerable uncertainty in the commodity.

Reuters

U.S. Silver sees 2.4 million ounces of silver production this year

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In recent days, silver futures have found support repeatedly just under $30.00, but the metal has been unable to stage a strong rally off of this level since touching it on December 20. The weak behavior of the commodity likely has some investors nervous about dipping their toe into the water at current levels, but on a longer term basis the risk may pay off.

From a fundamental perspective, the outlook for silver appears bullish. The economy continues to grow at a moderate pace which helps drive industrial demand for the metal. Improving risk appetite in global financial markets could be a tailwind for silver in 2013. Alternatively, the deteriorating fiscal situation in both the United States and Europe may be bullish for the metal in the long-run, even if risk appetite falls dramatically.

The continued likely policy prescription for rising debt levels in the developed world is more money printing by global central banks. Over time, this policy will continue to deteriorate trust in fiat currency and could erode the value of a host of currencies versus precious metals. Silver might be in a sweet spot given that it can do well in an economically vibrant environment as well as one that is marked by money printing and concern over exploding debt in the developed world.

What is holding the metal back, however, is the lack of any real signs of inflation despite the enormous stimulus programs that have been implemented by policy makers. Inflation, however, remains a very real threat over the longer term and this could be the catalyst that sends silver prices back to record highs in coming years. Investors who are bullish on the metal may want to use the most recent pullback to make some additional purchases.