Go Long On Silver

                                            Jim Rogers: silver price correction beneficial

Jim Rogers, the renowned investor and – along with George Soros – co-founder of the famous Quantum Fund, told The Economic Times in an interview that he expects further declines in the silver price. In his view, however, the current silver price action is a healthy development as far as long-term investors are concerned. Rogers added that the white metal's long-term up trend was still intact.

According to Rogers, given the surge in the price of the metal since last August, a sharp correction was overdue. A parabolic price increase would have been counterproductive and would have resulted in a bubble. At one stage the silver price had risen by 25% in only one month – unsustainable appreciation.  

Rogers think that silver will probably continue correcting in the short term, but nothing indicated that its long-term up trend has come to an end. In the case of further falling prices, Rogers hopes that he will be courageous enough to add to his silver positions. If the silver price had kept on rising without this correction, then Rogers would have gradually sold his positions in order to get out of the market before the bubble burst. But this healthy correction has laid the foundation for an ongoing bull market in the precious metals sector.

Last week's report from the Commodity Futures Trading Commission (CFTC) showed that speculative long positions in the silver sector amounted to 9,386 tons – down by around 28% from the 13,047 tons held by speculators at the beginning of April, when the white metal reached its most recent price high. Average daily turnover in the silver sector at the Comex climbed to $17 billion in the first five months of 2011, compared with only $5 billion last year.

Market observers cannot agree on the extent to which the current demand for silver is being driven by speculators. When taking the latest statements and data from precious metal traders into account, the physical demand for gold and silver still remains at a very high level – in particular with regards gold and silver coins, which remain popular among small investors. In many countries (particularly in Asia) inflation is becoming more and more of a concern, with investors buying gold and silver as a means of protecting their savings.

Even if the US Federal Reserve stops its quantitative easing measures at the end of June, the Fed's continuing zero-interest-rate policy (ZIRP) will still support high precious metal prices. So far Ben Bernanke and the members of the central bank's Federal Open Market Committee have not clearly outlined what their monetary strategy will look like after the expiration of their second bond-buying programme in June. However, many market observers have already bet on the Fed resorting to more quantitative easing, as a renewed slowdown in the US economy looks increasingly likely.
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