What Market Fundamentals Can Affect The Silver Futures?
In free market economies, supply and demand
is the primary enabler for price movement. Any outside forces that affect supply and demand eventually affect prices. When
you are considering a trade in the silver market some of the basic fundamentals that you should consider are:
1. U.S. Dollar The main factor that will affect the commodities market
is the value of the US$, because commodities are priced in US$. As you know The Federal Reserve and the Department of Treasury
have committed nearly $8 trillion towards the bailout and economic stimulus packages. This unprecedented creation of liquidity
will inevitably weaken the US$, and we believe that will result in inflation.
Mine Supply In 2008, when silver prices were around $20, mine production was expected to increase significantly. However,
the price of silver has dropped. The current price levels are quickly ruining mining companies. A number of
projects that were quite profitable are now unprofitable, and there’s no debt or equity capital to finance the losses
needed to sustain production. This is leading to the wholesale abandonment of mining projects.
3. Fiscal Stimulus The US and China will lead the world in fiscal
stimulus and that fiscal stimulus is going to be focused on infrastructure. So the raw material required for that infrastructure,
and the general simulative effect of the infrastructure build is going to have a significant impact on the overall world economy.
4. Jewelry Demand India is traditionally the largest market for gold jewelry demand. However,
with the price of gold relatively high on a historic price-ratio basis compared to silver, we are starting to see substitution
demand in favor of silver. India is now importing silver at record levels.
Coinage Demand In 2008 Coinage demand was up 68%. The US mint is having trouble keeping up with demand for
the popular Silver Eagle coins. Coinage demand is expected to grow in 2009.
Investor Demand There seems to be a growing belief that the only way to deal with both the recession and asset deflation
is by creating huge amounts of liquidity. Governments around the world are doing this by printing more money and increasing
deficit spending. We believe that given the current economic enviroment, investors will increasingly look to
add silver to their portfolios.
These are just some of the basic fundamentals
to keep in mind when you are considering a trade in the silver market. Therefore, before opening up a commodity account to
trade silver you should consult with a licensed commodity broker that follows the silver market to discuss investment strategies.