The price of silver hit new highs as it crossed $ 45, an increase of 33 % for the year-to-date, yet a lot of economists are now starting to question how much further it can go.
The fundamentals are certainly strong, a drop in mining production and a recuperating global economy have led to a rise in demand for the precious metal. And investors remain keen to avoid devaluing fiat currencies in favor of commodities with demand for silver ETFs rising 2 % in March alone. However the fact that investors continue to purchase ETFs means that supply is taken out of the market and the price rises begin to exhibit a bubble mentality.
Many people remain bullish on silver reasoning that historically the gold silver ratio has settled around 16:1, meaning that 1 ounce of gold has the same buying power as 16 ounces of silver. Though the last time the ratio reached 16:1 was du ring the energy crisis in the 1980s. As a matter of fact the long term average stands at around 40:1 meaning that silver, at todays ratio of 37:1, could be about right. A lot of analysts did not expect the ratio to drop below 40:1 so quickly leaving some to argue the price may be before of itself.
Plus there are wider economic elements that could dampen silvers meteoric rise, a rapid resolution in the Middle East or a strengthening US Dollar would hinder further gains. There has certainly been some brightening in the US economic data of late but whether it will be sustainable remains to be seen.
What remains clear is that after such a strong bull run in the silver market, any correction would come hard and fast so it may be wise to sit on the by lines and remain conservative in the short term.
However, with the US continuing to struggle under the weight of its own debt, policy makers may be pushed to accept inflation as a way to ease the burden leading to a further devaluation of the dollar. Therefore silver remains an attractive option over the long term and will continue to be seen as a safe haven for many investors. Many still argue that we are in a 10 year inflationary cycle and commodities will continue to do well during this period, so we could still see a further 10 years of progress in the UK silver prices. Whether the governments around the world can sustain a 10 year inflationary cycle remains to be seen though.
