Silver Attracts Heavy Investment But Volatility's A Caveat

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TORONTO (Kitco News) - Silver is riding a wave of investment demand because of inflation concerns and geopolitical fears and will remain volatile during the coming months with a range of as much as $20 an ounce, according to an executive of a New York consultancy.

May silver futures closed up 78.3 cents at $36.11 an ounce Monday. Prices closed near mid-range and hit another fresh contract and 31-year high.

Jeffrey Christian, managing director of the CPM Group, said investors are nervous, worried that inflation is rising, that the currency markets are uncertain and that the stock market is top-heavy.

"They're saying 'Let me diversify into precious metals' and silver seems to be one of the more attractive ones to them," Christian said. He was interviewed by Kitco News on the sidelines of the Prospectors & Developers Association of Canada being held in Toronto.

Christian said investors also are buying gold and silver because of the economic and political uncertainty in the Middle East. They fear unrest in Libya and other oil-producing countries could drive oil prices even higher and could dampen the economic recovery and stunt the stock market.

It isn't too late to get into the silver market, Christian said, but investors should take the right approach. "We're telling our clients to not necessarily be buyers a $36," he said, but also not to sell their long positions in that area. They should keep those positions as a long-term holding, he said, "but buy some puts to hedge against prices falling down."

Christian said silver prices could trade in a $20 range between $40 and $20 in the next few months. "That is an incredibly volatile market," he said, noting the price was $27 a few weeks ago and everyone thought the bull rally was over.

"I would not advise anyone to be a buyer at this point," Christian said. "I'd be waiting to see the price pull back to $27 or lower over the next few months. Then I would come in as a buyer at that level."

While silver has been soaring, platinum and palladium have hit some bumpy paths. Prices have fallen because there are viewpoints that if oil prices get higher, people could stop buying new cars. "We think that is a false thesis," said Christian. He said there are a variety of analyses in the oil market right now that don't necessarily hold credence.

Nevertheless, he said. that are a lot of hedge funds dumping platinum and palladium because they think auto sales will be negatively affected by the increase in oil prices.

By Daniela Cambone of Kitco News dcambone@kitco.com