Silver To Enter a New Era of Respect
Melissa Pistilli

For silver, 2008 was a record year as the precious metal hit $21.34/oz in March and managed to maintain a healthy level until the current global economic crisis sent investors pouring from the market in the fourth quarter.

Since September, I have heard some of the most respected analysts, traders and execs in the industry rattle on about silver shedding its industrial metal mantle and taking on the shine of a safe haven asset in the face of deepening worldwide recession. All the while, silver took hit after hit as every hedge fund in town began dumping its commodities holdings, precious metals included.

While 2008 ended on a sour note for silver, it seems the bullish silver buffs may be proven right in 2009. In hindsight, it appears the silver price reached its bottom back in October dropping below $9/oz and has been steadily climbing out since the new year began. Monday morning, the sometimes industrial sometimes precious metal was flirting with a high of $12.59/oz.

Both silver and gold have benefitted from the safe-have buying spree that has erupted in a climate plagued by rising job losses, failing financial institutions, tightening credit, collapsing housing markets, and depressing economic reports. As the bankruptcies, bailouts and bad news mount investors are finding it harder and harder to see any sign of light at the end of the tunnel, and many are choosing to store their wealth in the precious metals both on the paper market and in bullion as well.

And with more bad news expected out of Washington this week silver’s price hike is sure to continue. The word’s already out that the Dems and Reps on Capitol Hill can’t seem to agree enough to place a stamp of approval on the new financial rescue package that was due out this week and have now pushed back its unveiling to next week.

This week, reports are due out on the state of consumer spending, employment, retail sales, and the manufacturing and housing sector. January’s employment report is due on Friday and is expected to cause the most pain as at least half a million Americans are believed to have lost their jobs last month.

The recession that’s gripping economies all over the world isn’t likely to turnaround this year, which spells good news for precious metals prices. In fact, analysts like John Hathaway, Tocqueville Gold Focus Fund Senior Managing Director, believe 2009 may prove a better year for gold and silver than 2008.

In an interview with Emirates Business, Hathaway points out that while precious metals prices plummeted in the markets last year, they should perform better in 2009 as the "inflationary policies, both monetary and fiscal, of world governments finally take hold."

When asked for his 2009 forecast, Hathaway said he believes "both gold and silver will rise to new highs in the coming year" reaching in excess of $1,000/oz and $20/oz respectively. He advised investors "that in today’s uncharted macroeconomic waters, some exposure to the precious metals sector makes a lot of sense."

Brent Cook, geologist, investment advisor and editor of Exploration Insights newsletter would agree. In a recent interview with The Gold Report, Cook said he thinks "precious metals will be entering a new era of respect over the next few years."

Silver’s fundamentals will improve as base metal mining operations around the world shut down in reaction to falling demand. "There are very few pure silver companies," he pointed out. Around 70 percent of silver comes to market as a by-product of base metal production; consequently, we’re likely to see a slump in silver supply along with increasing demand as the worldwide financial situation worsens, which will prove "positive for the silver price," said Cook.

Fresnillo’s Bid for MAG Silver Stinks

In light of silver’s projected price position this year, the term "stink bid" very aptly applies to Fresnillo’s $179 million buyout offer for MAG Silver Corp. [TSX: MAG].

"It doesn’t make any sense. I think they were trying to take advantage of thinking that people would just flock to it because it was cash," said MAG Chief Executive Dan MacInnis, who is also a trained geoscientist. "It’s not going to survive at its present rate."

The mining giant already owns a nearly 20 percent interest in the junior and clearly has its sights set on the rest. In reaction to the takeover bid, MAG has stepped up its exploration work in central Mexico in an effort to boost its perceived market worth. "The best defense is a good offense," said MacInnis. "We’ve got eight drills of our own turning right now on four of our other land packages that we have."

The favourite right now is MAG’s Cinco de Mayo deposit with its most recent assay results of 13.5 ounces of silver per tonne, 10 percent lead, and 13.6 percent zinc over a 2.7 metre zone.

However, the Canadian silver junior’s main holding is the Juamicipio property in north-central Mexico of which it holds a 44 percent stake in a joint venture with Fresnillo. The property lies near the Fresnillo mine, which has an annual output of approximately 35 million ounces.

Since first exploring the Juamicipio property in 2003, the company has discovered inferred resources totaling 238 million ounces of silver on the Valdecanas vein. In 2005, Fresnillo entered into a joint venture with MAG, taking a 66 percent stake in the property.

MacInnis has said that the gold and base metal mining should pay for the company’s mining expenses, making silver production virtually free. Obviously, "Fresnillo recognizes the value of the property," MacInnis said. "This is a company-maker," he said of the property. "You can build a very nice company around the cash flow that this will generate in four or five years."

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