The play in silver eases, but it may not be over

Now that the smoke has begun to clear from the recent battlefield of the silver market, analysts are looking for signs of what will happen next . . . and finding very little in the way of solid indicators.

Only two things can be said with any certainty about the near-term silver market: The drama is far from over, and the Hunt brothers, plus four or five Arab investors, still hold the key, short of government intervention.

"A [silver] price level of between $6 to $8 probably reflects a level that responds to production and consumption forces," says David Johnston, executive vice-president of E. F. Hutton & Co. "Somewhere in that range is what you might call the 'true' price of silver, and if the Hunt brothers' silver were to come on the market, silver would probably go to that level. But no one knows if their silver will have to come on the market. No one really knows what they will do."

Mr. Johnston notes that the Hunts and the group of Arab investors had plans to issue silver-backed bonds "as a cheap way to borrow money." They may use that money, if the bond issue works to buy more silver, he speculates.

Asked if he thinks silver prices will go up or down in the near term, Mr. Johnston replies vaguely, "The answer to your question is, yes."

Walter Frankland Jr., executive vice-president of the Silver Users Association in Washinton, D.C., comments on the price question: "The key will be the next week to 10 days. We are still in a tenuous position. Some people are breathing like it's all over, but I'm scared to death for the next week. . . . There is still some excessive speculation out there in the market. It could be that certain people are sitting on large chunks of silver, and we don't know but that they are poised and ready to strike again."

A key factor in bringing silver prices from $50 to $11, Mr. Frankland says, was the rush of individuals to cash in on their own silver holdings, primarily silver coins and streling silver. Last year, such secondary supplies accounted for 70 million ounces of silver. At the rate they have been coming in this year , he says, the final tally will run at least 100 million ounces for 1980, by far the largest amount ever."That could be a conservative estimate," he adds.

During January, refineries faced a nine-month backlog for melting the stuff down. The situation became so acute that they stopped paying the high market price for silver and thus slowed the rush and whittled the backlog to six months , where it stands now.

"Decreased usage and increased supplies" helped yank the rug from the high prices, Mr. Frankland says. In addtion, the "anxiety factor tied to events in Iran and Afghanistan began to wear off.

"What happened to silver followed a classic pattern for commodities," says Mr. Johnston. "It is impossible for a commodity to go up that high without falling sharply. Iran, Afghanistan, and the huge increases in inflation pushed it up to unrealistic levels."

If the Hunt silver-backed bond issue actually materializes, says James Sibbet , author of a silver and gold newsletter, "it guarantees that 200 million ounces of silver can never come back onto the market." That much silver is more than a year's consumption for the United States and adds up to more than the combined stock of the New York, Chicago, and London silver exchanges.