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Silver Fundamentals

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Silver Basic Fundamentals

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.

2. 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.

5. 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.

6. 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.

Click here to contact a commodities broker with experience in the silver market.

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