Silver prices today - along with other commodities - have slumped $0.57, or 2.83%, to $19.55 by midday after tightening credit conditions in China triggered global market sell offs on fears about Chinese economic growth.
The silver price drop follows a rough week for the white metal, which lost 9.07%. Prices managed to claw back over $20 after gaining $0.43 Friday, finishing the volatile week at $20.06.
Since the start of 2013, silver prices have been in a tailspin. The metal has shed nearly 34% year-to-date, making it this year's worst performing commodity.
The precious metal's retreat was pronounced Thursday when silver futures for July delivery slid 8.3% to $19.823 an ounce. In trading after the settlement, silver prices slipped further to $19.56, the lowest level since Sept 3, 2010.
Silver prices today sit a long way off from its 31-year record high of $49.80 an ounce hit in April 2011.
Last week's rout was fueled by comments from Ben Bernanke following Wednesday's FOMC meeting. The Fed chief suggested the U.S. central bank could start tapering its stock and commodity markets supportive stimulus program later this year.
Further weighing on silver were reports out of China showing the Asian nation's economy is facing a slowdown.
Spooked investors fled equities and precious metals in droves.
"Silver is quite speculative, it's quite volatile, so a little less money is going into silver," Tony Coleman, managing director of New Zealand Gold Merchants, one of the country's largest precious metal refiners and bullion dealers, told NZ Business News. "But they [investors] want to have a bit of a play and silver is the one you can really make some money on because of movements in price."
Indeed, that's because of silver's high beta. That means it has wider price swings than other metals in both bull and bear markets. While those wild moves scare some investors, they offer huge gains for those who stick with silver.
While silver often trades in tandem with gold, its movements are often more extreme. That's why precious metal experts like Money Morning's Resource Specialist Peter Krauth like to best describe silver as "gold on steroids."
Silver Demand Still Strong
Silver's recent price declines have kindled fresh interest and demand, particularly in Asia where the region's desire for bullion is setting a new record this quarter.
U.S. retail investors also haven't lost their shine for silver. Money Morning caught up with Jake Haugen, VP of sales for Texas-based Provident Metals, who said business is booming.
"FOMC taper talk and the resulting price action across all risk assets caused an 800% increase in the average demand for our products," Haugen told Money Morning on Friday. "We're actually excited for our customers, prices are favorable and they love to add to their positions during the dips!"
Industrial demand, which has increased substantially over the past two decades, likewise remains robust.
The Silver Institute reports that industrial demand of the white metal is expected to average more than 483 million ounces from 2012 to 2014, a level 53% greater than the average annual industrial fabrication demand of 313.4 million ounces from 1992-2001.
Silver Prices Going Forward
UBS lowered its silver forecasts for 2013 and 2014, citing the white metal's tendency to move in tandem with gold. But the investment bank sees a recovery longer term.
"Silver continues to lack its own drivers at the moment and is therefore taking its cues from the gold market," analyst Joni Teves said Monday. "This means that the white metal would also come under pressure as gold sentiment sours further. And given silver's tendency to overshoot gold moves, the downside risks are greater in the short term. Further out, though, we do expect silver to gain favor on the back of its role as an industrial metal."
The industrial use for silver is one explanation for silver ETFs' performance.
"The resilience of silver ETF investors so far this year is very likely related to expectations that silver as an industrial metal will benefit from a global recovery," UBS noted. "In a sense, it is a similar trend as seen in PGM (platinum group metals) ETFs, but dampened by silver's much stronger correlation with gold."
While UBS trimmed its silver price forecasts for 2013 and 2014, our precious metals research team sees a different pattern ahead.
In fact, this new report outlines the five drivers that will launch the next silver rally. That means these current low prices represent an incredibly buying opportunity.
Is Now the Time to Buy Gold and Silver
Silver Prices: The Best Is Yet to Come
NZ Business Day:
Investing in Gold
Medical News Today:
Silver Boosts Effect of Antibiotics
The Silver Institute:
Industrial Uses to Boost Demand for Silver
UBS Trims Silver Forecasts: Sees Boost From Improving Economy