Within the precious metals group, silver has outshined gold recently. Silver has been considered a more affordable store of value, and as such accessible to a larger group of people. This, combined with the abundance of investment vehicles that made holding silver as an asset relatively easy, drove the demand for the metal more aggressively. Another factor contributing to this trend was the industrial application of the metal. While just 13% of demand for gold comes from medical and industrial application, silver is widely used in optics, for its reflecting properties, and electronics, for its exceptional conductivity. These two sectors accounted for over 60% of silver demand in 2010, according to The Silver Institute in Washington DC. Silver benefits substantially from both areas, i.e. being a recognized store of value and an industrial commodity. It seems, many investors have recognized this advantage and are betting on continued short and medium term appreciation of silver price
The fundamental factors that have been driving the rally in precious metals are still present and are likely to remain active in the short and medium term. The near zero interest rate policy of the Federal Reserve is likely to continue in the foreseeable future as the US recovery is slow, not irreversible, and with a persistent high unemployment. The recent downgrade of economic outlook in the US by S&P further deepened the lack of confidence in US dollar. This will also drive investors further to the safety of the “ultimate currency”, i.e. precious metals. Moreover, we should not forget the fears caused by the sovereign debt crisis in Europe. The government bonds, which were previously perceived as near zero risk instruments, now carry high risk premiums causing capital flight to the safety of precious metals.
Silver Rolling Daily
The current spread betting price chart for silver for the spot or current price looks like this: –
As you can see, the price is in a decline, with the MACD still heading down. However, because the price is on the lower Bollinger Band there is a chance that it may rebound, as happened in the middle of the chart. In this situation you should probably wait and see which way it breaks, but assume for the sake of example that you decide the price is turning around, and place a long bet on silver, which is currently quoted at 2394.1 – 2397.1. Say you staked £3 per point.
If your bet works out, the price might climb up to 2852.1 – 2855.1, and you could close your bet for a profit. Your bet opened at 2397.1 and closed at 2852.1, for a gain of 455 points. With a stake of £3 per point, that amounts to a win of £1365.
But if the trend continued, and the price fell you might be faced with the decision to close your bet to prevent further losses. Say you let the price go down to 2165.10 – 2168.10 and then decided to cut your losses. Your loss in this case would be from the opening price of 2397.1 down to 2165.1, which works out to a loss of 232 points. Multiplying this by your stake, this bet would have cost you £696.
One way that many spread traders choose to limit their losses is to place a stop loss order when they place a bet. In this case, your spread betting provider might have taken you out of your bet with a stoploss when the quote was 2256.7 – 2259.7. Taking the closing price of 2256.7 away from the opening price of 2397.1, this time you would have lost just 140.4 points, which for your stake would amount to £421.20.
Silver Futures Spread Bet
The current futures style spread bet on silver with IG Index is for the near quarter, two months away. The price quoted is 2390.3 – 2393.3. If you feel that silver is overvalued and will suffer a decline in the next few weeks, you might choose to stake £3.50 per point on a short bet, which would be placed at the selling price of 2390.3.
Suppose first that your bet is a winner, you might see the price plummet to 1703.3 – 1706.3. The closing price would be 1706.3. Taking 1706.30 away from the opening price of 2390.3, you would have gained 684 points on your bet. With a stake of £3.50 per point, your total profit would be £2394.
It is important when you place a future style bet to realize that you are allowed to close the bet at any time, and do not have to wait until the expiration date. You might need to close your bet quickly if it goes against you, in order to minimize your losses. Say the price went up to 2619.3 – 2622.3, and you decided that this trade was not going to work out. Closing the bet at a price of 2622.3, you take away the opening price of 2390.3 to find that you have lost 232 points. You wagered £3.50 per point, so multiplying by 232 your losses amount to £812.
Once again, a stop loss order placed when you take out the bet might save you some of this loss. Your spread betting provider would have to close a losing bet for you if and when the price level you specified was reached. Perhaps your losing bet would be closed at a price of 2527.7 – 2530.7. Working it out, 2513.7 minus 2390.3 is 140.4 points. Multiplying this by your stake of £3.50 per point, your losses in this case amount to £491.40.