Silver Stocks Volatile as Asian Demand Deteriorates
October 18 2011 - 8:16AM
Marketwired
Silver prices have been volatile of late as signs of a
strengthening US economy has pushed the dollar up, and taken away
the metal's safe haven appeal. Meanwhile, a slowing Asian economy
has led to concerns regarding industrial silver demand. The Bedford
Report examines the outlook for companies in the Silver Industry
and provides equity research on iShares Silver Trust (NYSE: SLV)
and Silvercorp Metals Inc. (NYSE: SVM) (TSX: SVM). Access to the
full company reports can be found at:
www.bedfordreport.com/SLV www.bedfordreport.com/SVM
Several marquee silver producers forecasted a drop in silver
prices and took necessary precautions such as selling several
mining sites. Many companies also increased hedging. Hedging
programs allow producers to lock in current silver prices for
future production, guarding against any potential price declines in
the future. Banks which execute these forward sales borrow silver
from the spot market, which reduces the physical supply of silver
temporarily. Analysts warn that an increase in hedging could be
taken as a bearish signal for silver prices as it directly
increases selling pressure in the market.
The World Silver Survey 2011 report produced for Washington's
Silver Institute noted that last year saw a dramatic return to net
producer hedging, with 61.1 Moz added to the global hedge book -- a
volume just short of the 1997 record high.
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Silver mining stocks -- which have underperformed silver prices
all year -- are also struggling. "Concerns about a possible hard
landing for the Chinese economy has weighed on mining stocks,"
David Jones, chief marketing strategist at IG Index, explains. "It
is difficult to see a catalyst for further gains in the short
term."
In China, roughly 70 percent of the country's silver demand
comes from the industrial sectors. Chinese customs data recently
showed export growth falling last month more than expected, while
import growth also slowed.
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