Silver's charms are fadingand so are chances of a quick silver comeback.
The metal has had a manic-depressive 12 months. On April 29, 2011, futures vaulted to a record settlement high of $48.599 a troy ounce, then plunged 27% over the next five sessions. The metal never recovered after exchange owner CME Groupraised trading margins to quell the extreme volatility.
However, with prices now around $31, don't be seduced into thinking that silver is about to shine again anytime soon. "Silver is the one that doesn't get invited to the birthday party because it bites people; it's nasty," says Sterling Smith, an analyst with Country Hedging in St. Paul, Minn.
THE STOMACH-CHURNING UPS AND DOWNS of last year continue. This year's roller-coaster ride has seen prices race up 33% in late February, only to slide 16% since then. This alone should serve as a warning to timid souls. But signs also abound that silver's best days are behind it.
.In the futures market, the open interest in Comex silver futures points to a metal losing its charm. This measure of the number of silver contracts in play remains anemic at around 120,000. This compares with more than 140,000 during silver's rally last April, and more than 160,000 in late 2010 when most commodities benefited from a spike in investor demand on the back of QE2, the Fed's quantitative-easing program.
The shimmering hoard of the metal building in CME warehouses also reflects its dimming allure. Silver stored there is touching a 10-year high at 140.6 million troy ounces, or about 18% of 2011 global mine output. The massive stockpile "points to currently plentiful supply on the global silver market and is likely to block any significant price rises in the near future," analysts at Commerzbank say in a research report.
The May contract on the Comex closed at $31.411 a troy ounce Friday, down 0.8% on the week.
INVESTOR INTEREST IN THE PHYSICAL silver market also has shriveled. The sales of silver-bullion coins by the U.S. Mint, an indicator of investment demand, have been slow this year. In the first quarter, 10,139,000 troy ounces in silver coins were sold, 18.4% below the 12,429,000 in the corresponding 2011 period.
Industrial demand for the metal is also waning, as the global economy continues to struggle. Silver has a wide variety of uses in high-end manufacturing, like solar-power applications and electronics. The metal is better than copper at conducting heat and electricity.
Metals consultancy Thompson Reuters GFMS predicts that industrial demand will pick up in the second half, and forecasts that silver will trade in a range of $28 to "just north" of $40 a troy ounce for the remainder of 2012. But such a wide price range should flash warning signals to investors because of silver's worrisome volatility.
Royal Bank of Scotland offers a less alluring outlook. It sees silver touching a high of $34 in the third quarter before trending lower.
