Is Silver A Good Or Bad Investment?

Right now many analysts seem to agree that the technical signals for silver don’t look too good. Many of the popular ETFs that hold silver for investors and track silver spot prices have been seen as too risky to hold by investors.

Murray Coleman at Barrons reports that shares of the iShares Silver Trust (SLV) came into today’s session down close to 13% on the year.

But SLV’s climbed more than 2% in late afternoon trading as the trading volume has surpassed the ETF’s longer-term daily average turnover rate. It seems that many money managers are looking to limit their risk and cut the amount of cash they have tied up. For them silver is an easy target Bart Melek of TD Securities tells Dow Jones Newswires.

Given the high volatility of silver right now exchange operators generally require customers to put up more collateral to trade silver than most other commodities. Silver futures fell by more than 25% during during 2011 so it’s no surprise that big traders are avoiding silver.

The ongoing debt worries in the euro zone is one of the greatest threats to commodity prices. A liquidity squeeze would force investors short on cash to sell their holdings in commodities and that in turn would force banks to curtail credit lines currently made available for commodity deals.

The January contract for silver rose 8.2 cents, or 0.3%, to $27.274 a troy ounce, after touching a low of $26.385 earlier in the day, as traders who had bet on the metal’s slide took profits.

The value of silver depends in part on its ability to maintain value during economic upheaval. But confidence in silver has broken down somewhat as the euro zone continues to struggle to contain it’s debt crisis. Many investors are fearful of another global financial meltdown and see the volatility in commodity prices as a sign that it is not a safe place for their money.

“People are piling into the dollar,” say Tom Winmill, a portfolio manager with Midas Funds. “Right now, it looks like the only game in town.”

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