New York

Gregory Meyer
RTGAM



New York - *** FOR DIGITAL PUBLICATION ONLY ***Silver made a partial recovery from its brutal collapse in May, cementing its reputation for volatility but puzzling analysts. Spot silver in London rose 8.3 per cent to $37.96 an ounce on the week, outpacing higher-priced gold and commodities more broadly.

The metal remains well off heights of close to $50 reached in late April, before a turn in sentiment and a steep increase in the deposit required to trade silver futures unravelled the market. In May, silver had plunged as low as $32, falling three weeks in a row before its recent turnaround.

The price, which reflects both industrial demand and investors' desire for a hedge against currency devaluation, was in part underpinned this week by a weaker U.S. dollar and fears over the euro zone debt crisis.

Yet the rebound appeared shaky, said Tom Kendall, precious metals strategist at Credit Suisse. Trading volumes have slowed and the $12-billion iShares Silver Trust , the largest silver exchange traded fund, had dumped about 7 million ounces through Thursday. This is almost 1 per cent of the amount of silver mined last year.

"One feature of the bounce that we've seen this week is there hasn't been a lot of participation from the physical side of the market," Mr. Kendall said. "I am a little bit suspicious about this rally."

Reports of a pick-up in hedging among silver miners has weighed against a further rise. Spot gold in London gained 1.4 per cent to $1,534 per ounce.

Given the wide array of factors affecting the silver price, not least sentiment about global monetary policy, views on silver tend to be divergent and passionate.

"There's not a large number of people who ever think the current price is the right price. Some people think it should be much higher, and others think it should be much lower. That tends to mean the price is quite volatile," said Matthew Turner, precious metals strategist at Mitsubishi.

"If we didn't know it had gone to $50, we would think the price was remarkably high. Now it seems to have formed a base and is going up again," he said.

Sales of the US Mint's one-ounce Silver Eagle coins, popular with small investors, remain strong, hitting 3 million so far in May, exceeding the previous two months.

After a steep fall early in the month, markets have also been buoyed in Asia, where buyers have been snapping up bullion on Mumbai's Zaveri market and trading volumes have been strong on the Shanghai Gold Exchange. Still, volumes and open interest had declined in Shanghai from highs earlier in May, said Edel Tully, precious metals strategist at UBS.

The Financial Times