Is silver's recent volatility a market correction or investors jumping off the bandwagon? Since the beginning of May, silver has plunged from more than 30-year highs, dropping 27 percent last week.
Silver, like gold, had taken on new luster since the economic downturn, as investors turned to precious metals in part as a hedge against inflation. This week, silver was trading at just over $35 an ounce. In 2009, it went from $11 an ounce to $17. In 2010, it kept rallying, from $17 an ounce in January to $29 an ounce by the end of the year. It began this year in the $30 range, and by April was around the $49 range, its highest level since 1980.
Gold, which was trading this week at over $1,505 an ounce, is still the most preferred of precious metals to affluent investors surveyed recently by Spectrem Group in March. Seventy-four percent said they were interested or very interested in investing in gold exchange-traded funds. Affluent investors prefer investing in gold ETF funds, but their interest in directly purchasing gold is also high. More than 60 percent said they were very interested or interested in investing in gold coins, and 48 percent were very interested or interested in gold bars.
But 59 percent of affluent investors also expressed a high degree of interest in silver ETFs, while 45 percent expressed interest in silver coins, and 37 percent, silver bars. Silver ETFs appealed to a much greater percentage of millionaires – 51 percent, compared to non-millionaires – 8 percent. Silver, is especially attractive to investors who feel they cannot afford gold, and believe if they have more shares of silver it will increase their purchasing power.
Silver had spiked 57 percent this year prior to the recent sell-off, USA Today noted. Among the factors in its collapse is that the Federal Reserve changed margin requirements on silver, so investors are not able to borrow as much money to buy it as they were previously able. Another factor may be that speculative investors who saw the huge rallies and wanted to jump on the bandwagon decided when silver was at its peak last month to take some of those profits. When they sold, it created a snowball effect.