Silver’s a bargain under $30, but watch volatility

Silver is ready to finish a dramatic year near the level it started, and some analysts predict big gains, and heavy volatility, for the white metal in 2012. “Silver went parabolic when it broke above $29 back in March of this year,” said James Carrillo, senior portfolio adviser for Swiss America Trading Corporation. “It fulfilled its parabolic blow off at $50 shortly thereafter and is now testing the break point.” Silver futures SI2H +1.03% closed at almost $49 an ounce in late April. After a whopping 7% drop on Wednesday, they’re trading back below $30. Read more on gold and silver futures. “In the latter half of the year, panic selling at both the personal level and institutional level brought silver down as investors had increased anxiety over world economic events,” said Paul Mladjenovic, author of “Precious Metals Investing for Dummies.”

The white metal hasn’t held up as well as gold because silver’s dual nature kicks in, he said. “Since silver is also an industrial metal and silver is a smaller market, panic selling has a more pronounced effect and the moves are more violent.”  “When people need money to cover margin increases, debt or other liability, they will sell and silver was part of this dynamic,” said Mladjenovic. But “nothing changed in the fundamentals for silver — they, in fact, keep getting better.” If prices hold above $28, silver may “resume its upward march next year,” said Carrillo. “I would be a buyer of physical gold and silver at these levels, with gold being massively supported at $1,500 and silver at $28,” he said.

Colin Hayward, who’s been a precious metals investor for more than 30 years, said the odds greatly favor silver finding a bottom in the short term, within the next one month to three months, considering the “extreme pessimism of silver bugs today.” Silver will then begin a run similar to what occurred after the 2008 “correction.” When the commodities sector bottomed in 2008, silver bottomed around $9 and then marched all the way to $49 over the next 31 months, representing a rise of over 5.5 times — “a bull market advance if ever there was one,” he said, adding that gold’s advance was about 2.8 times or around half that of silver’s. Silver is a bargain below $30, said Hayward, who’s also president of Gearology, which sells gold- and silver-themed consumer products. “Buying silver under $30 today is like buying it at $5 ten years ago.”’

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