Silver, After a Rough 1998,Shows Signs of Perking Up
By TERZAH EWING Staff Reporter of THE WALL STREET JOURNAL
(What do you think? Not quite a bull yet, is she?)
Since just after Christmas, the silver market has been visited by the ghost of rallies past. Since falling below $4.70 an ounce on Dec. 2, its second trip to that low level since prices spiked in February on news of Warren Buffett's interest in the market, silver has climbed fairly steadily. Last week it booked increases every day but Monday, with the largest a 12.3-cent jump on Wednesday at the New York Mercantile Exchange's Comex division. On Friday, the March contract rose 4.8 cents to settle at $5.288 an ounce, the nearest-month's highest close since Oct. 1. While that's still nowhere near last year's high of $7.28 an ounce, hit at the height of the buying frenzy spawned by the Omaha investor's purchases, the current increase's timing echoes the price's move ahead of Mr. Buffett's announcement last year. It's also well above the lows below $4 an ounce that the front-month futures contract saw in the early 1990s. Silver, unlike gold, base metals and other commodities, hasn't been anywhere near its historic lows recently.
That's not to say 1998 wasn't a rough year for the white metal. After the peak early in the year, silver prices slipped steeply, traded in a range, then slipped again. And it isn't certain the rally will continue. Rumors about Mr. Buffett shedding or adding to his large silver position constantly circulate on trading desks in New York and London. A spokeswoman for Berkshire Hathaway, Mr. Buffett's firm, referred inquiries about the position to the firm's written policy against discussing its investments.
Still, regardless of whether Mr. Buffett has bought more or sold, silver has held up well compared with gold's long slide and the disastrous performance of its base-metal cousins.
One of the reasons for the silver price's relative hardiness is its hybrid status as both a base and precious metal. That can be a double-edged sword: Neither group has been a bullish influence this year, with poor Asian demand pressuring down base-metals prices and the weight of central-bank sales and waning investor interest slicing into gold.
But because the prices for the two kinds of metals don't move up and down together, silver traders have two sets of factors to look at when deciding whether to make a bullish or bearish bet. "It's predominantly an industrial metal," says Jim Vail, who manages the Lexington Strategic Silver Fund, the only silver-stocks mutual fund in the U.S. David Rinehimer, director of futures research at Salomon Smith Barney, added Friday, "It's trading off its commodity fundamentals. The stock market is high and we've had good economic numbers today. I don't think that's a negative background for silver." However, silver also acts like a precious metal sometimes, which brings in the added factor of investment demand. Traders and analysts note that one positive influence on silver prices recently arose from the precious metals trade in India, a key demand center for both gold and silver.
The Indian government, citing gold's not-always-salutary influence on the country's foreign-exchange balance, early last week said it raised the customs duty on imports of the yellow metal to 400 rupees, or about $9.33, per 10 grams from 250 rupees, or $5.87. To the cost-conscious Indian investor interested in precious metals, the duty on gold makes silver look like a better value. That gives a boost to demand.
Another, more straightforward factor buoying silver is the level of Comex stockpiles of the metal, Mr.Rinehimer said. They now stand at about 76.9 million ounces, well below the year high of above 110 million ounces. And technical traders, who buy and sell commodities based on price trends rather than supply/demand factors, say historical charts have been working in silver's favor, helping propel the market higher as key price levels were breached. Some of the same traders caution that silver's rally may not last, particularly if the bullish technical signals turn
bearish and send the price back below $5.15 an ounce.
Meanwhile, gold, still trading in the doldrums between $285 and $300 an ounce, is scrambling to find some news to follow and doesn't look likely to benefit from a continued rally in silver. "There's a lot of noise in the market at the moment and we're trying to get beyond that to see what is really happening," says Kevin Crisp, vice president at J.P. Morgan in London. The gold market got some relatively positive news Thursday. European Central Bank officials said the institution, which has surpassed the U.S. Federal Reserve as the world's largest holder of gold, doesn't plan any sales of the metal "for the moment and for the foreseeable future." Central banks sales have exerted a persistent downward pressure on gold prices in the last two years, and the ECB, a new player, has been a wild card.
Mr. Crisp says the increase in recycled supplies due to such sales and bank leasing, coupled with the increased subjection of gold to market forces, has changed the texture of the gold market. "Really, gold is not a scarce commodity any longer," he says. "It lost a lot of its mystique as the market liberalized." |
