Silver Q4 Outlook

By Michael Montgomery—Exclusive to Silver investing News

The silver has made impressive gains since the downgrade of US debt renewed fears about the global economy. Now sitting at a price of $42.34 per ounce, nearly its highest level since April when silver nearly reached its historic $50 per ounce high. The main factor holding silver back from matching the run up in price seen in gold is the industrial component to silver’s demand. Investors fear that a slowing economy will dampen the industrial demand component to silver.

Both silver and gold have upside potential as the global economy is unlikely to make a dramatic turnaround by the end of Q4. This is a key factor behind some of the world’s largest banks to revise their price projections for silver in the coming months.

Ongoing economic concerns

On top of the downgrade of US debt, an unexpected rise in jobless claims, as well as mounting speculation surrounding another round of easing measures from the Federal Reserve have added to the recent rally in precious metals prices.

Gold and silver are “being lifted by expectations that the failure of the US economic recovery to gain traction will force the Federal Reserve to embark on a third round of quantitative easing, which essentially translates into printing money,” reported Jan Harvey for Reuters.

Loose monetary policy has been the single most powerful argument of gold and silver bugs since the economic collapse of 2008. If a third round of quantitative easing measures comes from the Fed, most analysts expect aggressive buying of silver and gold.

The Eurozone is no better off. The ECB lowered its growth forecasts, which sent European shares falling early in the week. Growing fears of a recession and more evidence of political disunity in the Euro zone hampers the regions ability to solve the debt crisis.

Price forecast

Recently, UBS upped its price forecast for silver and gold, but warned that a correction to the precious metals rally is an increasingly possible scenario. The bank noted that volatile trades may come with rising margin requirements in Chicago and Shanghai, as well as ahead of Ben Bernanke’s speech on Friday.

Edel Tully, an analyst with UBS commented, “those who have missed out on the last few hundred dollar rally in the gold price perhaps believe that gold is near its short-term peak. And instead of playing gold from the short side, they prefer buying silver.”

UBS raised its price forecast for silver for one month prices up from $35 per ounce to $46 per ounce, and three-month prices to $50 per ounce up from $33 previously. The key short term resistance level is the $44 per ounce mark. Silver yet to breakthrough $44 since pulling back from over the $48 highs in April.

For the long term, if silver can break through the $44 level, as UBS forecasts for the next month, then the $50 per ounce mark seems to still be the psychological resistance level for silver market observers.

One can only speculate what events will have to take place to break the high water mark for silver. The implementation of QE3 from the Fed? A meltdown of stock markets worldwide which would mark another economic collapse?

Regardless of the doomsday scenarios, the global economic recovery is not gaining traction. Further debt concerns and loose monetary policy will continue to support silver. If the key short term resistance level of $44 per ounce is breached, most analysts expect silver to continue upward to the $50 mark before significant profit taking occurs.