We are short selling silver (SLV) again. The trigger is the agreement on debt ceiling. Since the only convenient market open is the futures market, we short sold near term silver futures contract at $39.82.
The debt ceiling uncertainty has added about $2.50 to the price of silver.
The world economy is slowing. At The Arora Report, we monitor leading economic indicators from 23 countries. Our forecast is that the world GDP will grow by 0.5% over the next two quarters less than the consensus.
Silver is also an industrial metal. Slower economic growth reduces industrial consumption of silver. Estimates of silver demand over the years have varied widely, depending on the source. In 2001, silver demand was in the range of 850 -900 million ounces. By 2009, silver demand was in the range of 875-925 million ounces. This was not a meaningful increase when compared to the Global GDP rise for the period.
In 2010, pent up demand from the recession materialized, pushing up silver demand to the 1025 -1075 range.
We previously estimated that the industrial demand in 2011 would be 500-550 million ounces compared to 540-575 million ounces in 2010. Due to the slower growth we are projecting, now we estimate the silver demand in 2011 to be $500 ‘“ 520 ounces.
The slower growth should take about another $2.70 from the price of silver. This leads again to a target of about $34.
Please understand that this call is only for nimble traders. Unlike my last call, this call is not for a typical investor. Further even with today’s addition,I will be holding only a small fraction of the full core position size. This gives me lot of flexibility in adding to the position if the price goes higher. Subscribers to ZYX Short Sell Change Alert may also be holding a small fraction of the core position size in a silver related short.
