Tuesday May 01, 2012 | Kitco Commentary | By Dr. Jeff Lewis, Editor, Silver-Coin-Investor.com.
Since the dramatic drops the silver market saw in May and September of last year, prices in the precious metals market have been suffering from an excess of negative sentiment. This adverse perception is weighing on metal prices and keeping investor demand at bay.
Furthermore, although investors have continued to buy physical silver, the overall quantity being purchased has declined significantly, resulting in reduced support for the metal’s price.
Nevertheless, the supply of silver is naturally limited by the quantity existing in the Earth’s crust, despite ever growing industrial applications for the metal and rising price inflation. This key combination of factors still provides a strong fundamental basis for continuing to hold silver over the long term.
Could Weak Silver Sentiment be Conveniently Manufactured by Central Bankers?
Interestingly, this depressed silver market sentiment picture seems to be the perfect political tool needed during a U.S. election year to lend much needed psychological support to an ever weakening U.S. Dollar in terms of its ability to purchase goods and services.
Keeping silver and other precious metal prices low by depressing market sentiment, and perhaps even engaging in covert market intervention, seems suspiciously convenient after such an excessive amount of liquidity has already been pumped into the U.S. monetary system by the U.S. Federal Reserve Bank’s highly controversial quantitative easing measures promoted by Fed Chairman Ben Bernanke.
In addition, given the high amount of liquidity the European Central Bank needed to inject to deal with the debt troubled Eurozone countries like Greece, Spain, Italy, Ireland and Portugal, the increasingly obvious end result will be higher consumer price inflation, despite ongoing denials by central bank and government officials.
More QE Measures Likely as U.S. Economy Languishes in Election Year
Bearish for the Dollar, but very bullish for hard precious metal currencies like silver, is the view among many market participants that further rounds of quantitative easing or QE measures by the Fed are still practically a given during this election year to help lend support to a stubbornly struggling U.S. economy.
Nevertheless, allowing metals to trade higher based on their strong fundamentals would severely dampen the U.S. central bankers’ ability to overtly increase the money supply in a substantial way.
EU Moves Toward Ratifying ESM to Provide More Permanent Bailout Mechanism
Another related development is that the European Stability Mechanism or ESM is expected to be ratified by July of this year, provided that enough of the 17 Eurozone member states approve of the bailout system to represent ninety percent of its capital commitments.
This new EU rescue program is expected to permanently replace the existing temporary European Financial Stability Facility within the Eurozone, thereby making meta-government bailouts an ongoing feature of the Eurozone’s economy.
As in the United States, a reasonable person can only expect more liquidity increasing measures will soon also follow in the EU, thereby making an even stronger case for continuing to hold and accumulate precious metals like silver.