With the U.S. Federal Reserve failing to take monetary action a few weeks ago, silver prices saw an opportunity to deflate, but instead have held steady around $27 an ounce.
Investors' silver holdings are approaching record highs as speculators exit the precious metal and exchange-traded products with silver add to positions. In the last three months, these products' holdings have grown to a $16.2 billion value, reported Bloomberg News.
But they're poised to get even higher.
Analysts have forecast that silver will average $33.02 an ounce in the fourth quarter-an 18% rise from current prices.
Since last week silver has been increasing and closed up 0.35% to $28.00 on Friday.
So why are investors bullish on silver? There are a few reasons.
Bullish on Silver Prices
One is belief that quantitative easing, or QE3, will still come.
Investors and analysts have bullish expectations that central banks around the world will step in and take action to stimulate the economy, broaden consumption and increase precious metals' attraction as a vehicle to hold value.
This has happened before. In the period from December 2008 to June 2011, prices tripled thanks to the Federal Reserve stepping in and buying $2.3 trillion of debt during two rounds of quantitative easing.
And you know the saying, history repeats itself.
Frederique Dubrion, the Geneva-based president and chief investment officer of Blue Star Advisors, summarized silver's activity in 2012 to Bloomberg News: "Since the beginning of the year it has reacted more like a base metal than a precious one. The main negatives are still in industry. We're waiting for more quantitative easing, and that would be really positive."
But will silver's wait end in September or later in the year, maybe December, for quantitative easing? That's the $64,000 question!
Forget about waiting, silver prices have already been rising this year. Silver is averaging a price of $30.37 since the beginning of January and is currently on pace for its second-highest annual level, following 2011's $35.27.
Its two-decade average price is $9.97.
Along with the hopes for quantitative easing, hedge funds are slowly jumping on the silver bandwagon, fueling future price gains. An Aug. 7 Commodities Futures Trading Report showed the funds had doubled their bets on net-long positions to 9,323 futures and options in the last two weeks.
Estimates for Silver Stocks Rise
Some investors are put off by silver's volatility but it's not enough to scare everyone away. Analysts have set higher earnings estimates for silver companies for this year and next.
Analysts' estimates have silver producer Coeur d'Alene (NYSE: CDE) seeing a net income of $126.6 million in 2012, up from 2011's $93.5 million. The company's shares have dropped 18% this year to $19.80 but a 35% rally to $26.74 has been forecast in the next 12 months.
In the last five trading days, the stock is up 7.85%.
Pan American Silver Corp. (NASDAQ: PAAS) profits are estimated to rise to $302.5 million in 2013, up from 2012's $234.8 million, according to analysts. The company's shares have fallen almost 25% year-to-date, but Wall Street gives them a one-year target of $27.42, 67% higher than Friday's close.
Just last week the company reported "exceptional" results from its Waterloo Silver Project at a mine near San Bernardino, CA.
Silver has been a work in progress this year and sometimes has flown under the radar. But it does have its share of fans. And will gain many more.
Jeffrey Sica, president of SICA Wealth Management said to Bloomberg, "People like me who have tremendous confidence in silver and are invested in the market see it rising once the easing begins. I expect acceleration in the fear trade. Most of the hedge funds who sold will be back once the market gathers momentum."
Silver prices were trading at $28.08 an ounce early Monday morning.
Related Articles and News:
- Money Morning:
CFTC's Chilton Assures Silver Price Manipulation Probe Not Over
- Money Morning:
Silver Prices Ready for QE3
- Bloomberg News:
Silver Hoard Near Record As Hedge-Fund Bulls Recoil: Commodities
- Press Release:
Pan American Silver Provides Update On Successful 2012 Exploration Program