Silver rallied to a 2014 high of $22.215 an ounce in New York in February, before...Read More
Options investors are bargain hunting after a two-month slump in precious metals prices.
While silver has wiped out almost all of a 15 percent gain through the first two months of the year, the cost of bullish contracts on an exchange-traded fund tracking the commodity has climbed to a three-year high relative to bearish ones. Traders are betting prices will rise with gold amid quickening inflation, a return of overseas demand and as the conflict in Ukraine continues.
Both silver and gold had their worst performances in more than 30 years in 2013, falling 36 percent and 28 percent, respectively. Investors lost faith in precious metals as a store of value amid an improving U.S. economic outlook and the prospect of the Federal Reserve cutting back on its monthly bond purchases.
“Silver is a precious metal, but it’s also an industrial metal and it’s taken a real punch in the face in the past few months,” Mark Sebastian, director of trading and investments at Swan Wealth Advisors Inc., said by phone from Chicago. His firm manages about $1 billion. “You’re probably seeing some pressure on puts and a bid on calls because the metal’s cheap. None of the precious metals are having the best years right now.”
Silver rallied to a 2014 high of $22.215 an ounce in New York in February, before tumbling to reach a low of $18.95 yesterday. Gold has dropped 7.3 percent from a six-month high reached March 17, partly as investors assessed the pace of further cuts to the Fed’s monetary stimulus. The central bank reduced its bond purchases in March for a third time and indicated it will continue to pare the program.
India Elections
The price of silver will rebound as demand for gold rises, said Philippe Capelle, a fund manager at Standard Life Investments Inc. in Montreal. China became the largest gold user last year as the steepest price drop since 1981 spurred demand for bars, coins and jewelry, according to estimates by the World Gold Council. In addition, the results of India’s election due in May are expected to bring a loosening in tariff rules introduced last year that led to a drop in official imports and a surge in cross-border smuggling in the country.
“Silver is gold on steroids,” Capelle said in an April 21 phone interview. His firm manages about C$33.2 billion ($30.1 billion) in assets. “If you think gold goes up, then silver will go up more. It’s what happens historically. I like the risk-reward on the silver price.”
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