Despite the parabolic rise in the price of silver just in 2011, investors still have plenty to be bullish about going forward, albeit cautiously bullish as a short term correction could easily send silver down to the $37-$38 level.
Supply-Demand
While Demand continues to soar, particularly on the investment side, the fundamentals still look bullish. Large bullion orders are taking longer and longer to receive from some of the world’s largest mints. But instead of focusing solely on the investment demand side, a recent study released by the silver institute should give investors even more to bullish about as the industrial uses for silver continue to expand at a furious pace, expected to increase 36% by 2015 over 2010.
Backwardation
The futures market for silver continue to remain in backwardation, indicating prices have yet to reach a price that causes the demand to abate.
Commitment of Traders – Large net short positions continue to be held by the large commercial traders even in the face of the recent meteoric rise in the price of silver, meaning we still have yet to see the inevitable short squeeze take hold. While the net short position is in excess of 50,000 contracts, the net position of world bullion inventories held short has slowly but surely decline over the past 6 months, indicating the large commercial banks, while not drastically reducing their short position, have reduced the concentration level. Another bullish sign is the increase in the commercial spread position, which explains why unadjusted open interest has spiked over recent weeks.
Going Forward
While it is prudent to wait for a pullback after the recent run in silver, this doesn’t mean one shouldn’t look for vehicles that provide exposure if the price is right. For example, Silver Wheaton (SLW) is trading as if silver were between -/oz, providing a margin of safety.
