In an advisory scheduled to be published Thursday, New York-based CPM Group suggest "silver prices have been in a bubble-like spike over the past few weeks and are extremely vulnerable to a sharp decline."
"Gold could also fall back sharply," CPM advises.
"Silver could fall $12 or more, to around $37 or lower, very quickly," CPM warned. "No asset in history has risen so sharply so rapidly and retained most of its price appreciation. Silver has no immunity to the laws of the markets."
Much of the recent buying last month "has been by shorter term investors who reasonably may be expected to sell once prices stop rising and start falling. Many of these investors have been momentum based traders, technically based traders, and short-term investors," said CPM.
Noting that buying in silver ETFs "has not been spectacularly great over the past month," CPM also observed that there also have not been reports of "exorbitantly large silver purchases in the physical markets." Meanwhile, there is no price pressure from heavy silver bullion coin buying.
"The price implication of this is that prices have been pushed sharply higher during April on thin buying volumes by shorter term oriented market participants and by congestion in May Comex futures contract," CPM advised. "This suggests silver prices are vulnerable to a sharp downward correction when, not if, these short-term buyers decide to stop buying, or perhaps decide to sell."
CPM also noted that silver ETFs have seen only modest buying. The main silver ETF, the iShares Silver Trust, rose from 35.8 million ounces on April 1 to 366.2 million ounces on April 25. As silver prices rose further last week, the SLV holdings dropped back to 354.3 million ounces of as April 29.