Speculative demand for silver saw the value rise by an extraordinary 80% in the three months before end April, when silver hit a high of USD49.80 in New York. With gold hitting new highs fairly often, silver in the $25 - $30 range had strong interest speculators when compared to its $50 high back in 1982. So silver took on the role of "Poor Man's Gold" and was hit by a wave of speculative momentum that took it almost without pause to within a whisker of its all-time high.
But just less than the magical $50 level, markets were hit with a mixture of factors that caused the silver price to retrace by 30%: an increase in the Chinese inflation rate cast doubt over ongoing interest in commodities, commodity funds exiting silver as it reached their target level, and futures exchanges increased their margin requirements on certain commodities including oil and silver. The silver price, which had seemingly risen as if on an escalator, dropped via a lift. In a telling statistic, the major silver Exchange Traded Funds (the favoured media for speculative traders) reported redemptions totalling 1,040 tonnes in the first week of May, an amount equivalent to about 40% of the funds' silver inflow throughout the whole of 2010.
Significant physical demand for silver bars has been experienced, with the 10 ounce, 20 ounce, kilo and 100 ounce bars proving the most popular. However, this recent surge in demand has exceeded our capacity to produce them. In response, additional silver refining and barring equipment is being installed at the refinery which is intended to increase capacity to double the current level. It is expected that this new equipment will be commissioned and operating at full capacity in early July.
Gold bar demand continues at a high level, prompted by continuing concerns over the US economy and persisting sovereign debt crises in Europe. Over the past six months, China's presence as a gold buyer has become ever more apparent, and unlike India, whose legendary demand is driven by perceptions of good value (and therefore price inelastic), China's demand appears strong notwithstanding the current price. The refinery meets this demand by producing on average six tonnes of kilo bars per week which are readily snapped up by eager buyers.
Despite the recent downturn in prices, physical bar demand for gold and silver remains at very high levels and looks like remaining so for the foreseeable future.
More Information:The Perth Mint is solely entrusted by the Australian Government to produce the nation's official
bullion coins, including these 99.9% pure silver coins portraying iconic kookaburra and koala wildlife
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