Why has silver gone up by 5%?
Moneylife Digital Team 21 January 2012

The commodities market in silver showed some signs of life by suddenly moving up 5.4% on 20 January 2012.

Last year, silver exhibited one of its most volatile movements in recent times with a sharp parabolic movement that saw the price shoot up from $30 per ounce to reach a high of $48 per ounce in April 2011, before crashing to end the year at $28 per ounce.

Eric Sprott, chairman of Sprott Inc and one of the largest holders of physical silver and silver equities globally, was obviously not happy with this volatility. “I have always liked silver because I look at the physical supply and demand metrics and they scream that silver should be higher. But the price is being kept down by paper silver traders who are abusing the market”, he cites in an open letter to silver producers.

According to news sources (Y!  Finance), Mr Sprott had called for an action to 17 of the world’s largest silver producers to limit the sale of the metal until prices increase. Basically, he was calling for an unofficial cartelisation to control silver prices, similar to the arrangement Organisation of Petroleum and Exporting Countries (OPEC) has for oil.

Thus, in an attempt to ‘rectify’ the actions of the paper silver traders, he filed with Securities Exchange Commission (SEC) his intent to raise as much as $300 million in a follow-on offering of his fund, of which the proceeds will be used to buy physical silver.

If one reads the fine print of the SEC filing, it states: “....The net proceeds will be used by the Trust to acquire physical silver bullion in accordance with the Trust’s objective and subject to the Trust's investment.....”

So, on 20 January 2012, the silver commodities markets finally showed signs of life by exhibiting sharp upwards movement.  It has gone up by 5%, from $30.6 per ounce to $32.2 per ounce? Why?

Nobody realised the significance of SEC filing until according to FMX Connect, “Today’s incredible move was the culmination of a comment made by UBS analyst Edel Tully. He stated that hedge fund manager Eric Sprott may be in the market buying spot futures in a private letter to his clients.”

To summarise the above statement, the market felt that Mr Sprott will supposedly use the proceeds raised in the follow-on offering, and use it to corner the silver market, by buying $300 million worth of physical silver, thus taking some supply off the markets which, in turn, will make the metal dearer.

Mr Eric Sprott expects silver to touch $100 per ounce by 2012 end, from the current price of $32, and believes that this decade will be defined by silver and not gold.

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