Silver price drops as Russian military exercise ends, troops return to barracks

Frankfurt (Mar 4)  Bullion prices climbed yesterday, with gold hitting a four-month high of $1,355, as money moved towards safe-haven investments amid growing turmoil in Ukraine’s Crimea region, where Russia has since last week been establishing a military presence. Silver yesterday rose to as high as $21.75, but the bulls didn’t challenge the four-month peak of $22.17, reached last week.

In today’s Asian trading, precious metals have fallen sharply since news broke that Russian president Vladimir Putin had ordered troops on military exercises on Ukraine's borders to return to their bases, fuelling speculation of a peaceful solution to the Ukraine crisis. Silver has dropped to a four-day low at $21.175.

Pension Partners chief investment strategist Michael Gayed yesterday warned that “once the panic subsides, we may see gold and silver become a bit vulnerable and lose some ground”.

The US and the European Union are threatening Moscow with economic sanctions over the Russian incursion into Ukraine. The US administration yesterday took some initial steps, suspending military co-operation with Russia as well as talks aimed at boosting trade and investment, in a bid to isolate the Kremlin.

Also yesterday, President Barack Obama observed that Russia is “on the wrong side of history” and international law, warning that further military moves into Ukraine “will be a costly proposition for Russia”. For now though, it seems most unlikely that the West will initiate any military response to the effective Russian occupation of the Crimean peninsula in southern Ukraine.

While the Ukraine crisis and mixed US economic data have been buoying precious metals, analysts at Citi Research don’t think the rally is justified by fundamentals and see silver averaging $20.40 in 2014. “For this surge to continue, we believe that significant investor physical uptake - in the form of ETF (exchange-traded-fund) and physical bar holdings - will be needed in the face of muted industrial demand and largely price-inelastic mine supply expansion.”

The Citi analysts stress that the strong retail investor demand for silver coins and medals in 2013, with record US Silver Eagle coin sales of 47 million ounces, was “driven largely by falling prices and resultant bargain hunting” whereas exchange-traded funds uptake “was muted because of those same price falls”.

Citi expects Chinese net silver imports to continue falling in 2014 after last year’s 37 percent drop y/y. The bank sees by-product output from mining operations for other metals driving up silver supply by two percent in 2014.

“We very much doubt that bullish market sentiment is sustainable due to weakening fundamentals and forecast prices to average $20.4.”

Silver is currently trading at around $21.275, down 0.78 percent intraday.

Source:  Invezz