Silver May 2011 Price Forecast

Silver is on a tear. So far, the price has hit $42 a share and shoes no signs of slowing down. There are a number of reasons for silver's rise including the general rise of the stock market, the commodity rally, unrest in the Middle East, QE 2 and inflation. However, it looks like there is nothing to stop silver from rising 15% over the next six weeks. Here are the reasons why.

Get ready for QE 3 (or at least QE 2.5)

There is speculation that QE 2 will be followed by QE 3. This is most likely to happen, even if it is not officially announced. Look for the general stock market to wobble at the end of May as people begin to believe that QE2 will end. However, you may find gold and silver de-leverage from a falling stock market as Wall Street insiders try to buy bullion on the dips. 

Look at State Budget Problems

There has been much talk about the debt ceiling on the Federal Debt. However, the real problem are the state budgets since they can not print their own money. As states like California and Illinois begin to make the bond market uneasy, you will see more buying into silver.

Also look at Bullion prices versus the market prices

Right now there is a 30% premium on One Ounce Liberty Silver Coins. If you see the premium rise to the 40% or 50% level, than that is a sign that people are so hungry for actual silver that are willing to raise the price of the premium. This is really bullish for silver.

Be Cautious with Silver after May

When May ends, you may see silver stumble a bit. That will be because May through October is the typical "weak" time of the year for the markets. And when you consider that the S&P 500 has double since the March 2009 low, we are overdue for a 10% to 20% correction. And even mighty silver may not be immune to that kind of market conditions.

Summary

The seasonal bull market and budget problems continue to propel silver ahead. Look for silver to push to the $50 before bouncing off of the landmark price. Don't be surprised if the price of silver backs off the $50 level after May as markets enter their seasonal weak period. 

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