Silver price due for correction - analyst

Reported by AAP
Tuesday, May 3, 2011
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The silver price has overshot the metal's fundamentals and a correction is due, an analyst says.

The silver futures price has been highly volatile, rallying to a 31-year high last week and tumbling 12 per cent in a matter of minutes on Monday after the Chicago Mercantile Exchange raised its margin requirement for speculative traders.

On Tuesday, the silver price for July delivery on the Chicago Mercantile Exchange firmed to $US45.16 an ounce, from an open of $US44.03/oz.

CMC Markets chief market strategist Michael McCarthy said the silver futures price would remain volatile after trading in a four per cent range on Tuesday.

"With silver having run so hard for so long, I believe we're now divorced from the fundamentals," he told AAP.

While its main uses were for jewellery and as a store of value, its use in industrial applications was being threatened as other malleable, conductive materials were sought as lower cost substitutes, Mr McCarthy said.

"We're now at a (price) level where for industrial uses, we would be seeing demand destruction and shifting into alternative metals," he said.

Silver is currently considered to be fairly valued when it is traded at a 40-to-one ratio with gold.

The ratio was 17-to-one in 1980, when there was a rush on both precious metals, and nearly 100-to-one in 1991, when silver hit its lows.

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