Silly silver price needed to fall, says top commodities manager

By Philip Haddon on 05 May 2011  

With the price of silver plummeting in recent days, leading commodities fundmanager Markus Bachmann says the pullback is overdue and could provide buying opportunities.

Silver hit a peak of $49.8 per ounce on April 25 but on Thursday was trading more than 20% down fromitspeak at $38.7 per ounce.

Bachmann, the Citywire A-rated manager of the Craton Capital Precious Metal Fund, thinks the fall was necessary and widely anticipated.

'It is a correction we were expecting. The gold-silver ratio went to a silly level,' he said, describing silver as 'like gold on steroids'.

The gold price has also fallen in recent days, but Bachmann says 'it doesn't mean the gold bull market is stopping by any means' and thinks it will soon 'find its rightful place'.

Silver's popularity, on the otherhand, was getting out of hand.

'It has to balance itself and find its normal level again after April when everyone tried to pile in to it,' he said.

He thinks the gold-silver ratio needs to find a more moderate level, closer to its historical average, and that investors ill find buying opportunities at some point.

'There will be a buying opportunity coming up for both physical silver and silver companies, but for the time being you might want to stand on the sidelines and see how it plays out.'

Despite silver's volatility, its dual role as both a precious metal and an industrial metal mean its fundamentals remain strong, as the worldwide recovery in industrial production will continue to boost its industrial usage.

He thinks silver has also benefited from being a relatively inexpensive alternative to gold for investors expecting inflation, as Bachmann does. 'Silver is the poor man’s gold, with no disrespect. It can be quite expensive to buy a kilogram of gold, and the inflation fears are real, people are feeling inflation in their pockets on a daily basis.' South Africa-based Bachmann warns investors not topanic-sell their silver exposure, saying they should 'hang in there and sit it out.'

In the meantime, he is bullish on goldequities. 'They are very very cheap. The valuations fundamentally areas cheap as they have been in a long time, and work at operating margins that lots of industrial companies can only dream of.'

Bachmann is ranked fourth in the gold and precious metals equity sector over five years having returned 75% with his Craton Capital Precious Metal Fund.

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