Peru President Warns of Retaliation on Silver

The Peruvian government’s freeze on silver sales, which has contributed to a sharp boost in the metal’s price, could draw retaliation by rich nations and big traders seeking lower prices, President Alan Garcia said.

Peru, the world’s second biggest silver producer, stopped selling its refined silver and state-marketed ore on tuesday. Since then, the metal’s price has risen to its highest level in nearly three years. It closed today at over nine dlrs an ounce on world markets.

Garcia said the move showed that a small nation like Peru could move international markets and did not have to accept cheap prices for silver, traditionally one of the top revenue earners of the country.

Peru exported its refined silver last year at an average price of 5.40 dlrs a troy ounce. As recently as one month ago, silver bullion was trading for about 5.70 dlrs an ounce on world markets.

“One thing is that Peru, which produces silver, sells it silently and in a submissive manner at the price world markets want,” he told reporters at the presidential palace.

“The other is that a nationalist government says, ‘wait a moment I can’t sell silver at these prices,’” he added.

The peruvian energy and mines minister, Wilfredo Huayta, said the government would maintain its freeze on new sales of silver until the price of the metal reaches “the true value this raw material should have.” He did not specify this level.

Garcia said rich nations and big traders, faced with Peru’s stance, could try to defend themselves.

“They have some stocks, they have silver deposits, they can make fictitious sales and that way try to make the price of our mineral fall in the world market,” Garcia said.

“Whatever manoeuvre they take will be answered by Peru,” he said. “Peru is in a position of action.”

President Garcia had recently spoken by telephone with Mexican President Miguel de la Madrid, Huayta said. Mexico is the world’s biggest producer of silver.

Mexico and Peru together produce nearly nearly 40 pct of the world’s silver, the official newspaper El Peruano said.

The newspaper added that Peruvian central bank president Leonel Figueroa and the head of the central bank of Mexico, Miguel Mancera Aguayo, met in Mexico City yesterday to coordinate actions aimed at consolidating the upward trend of the price of the metal.

Analysts in Zurich, a major silver trading centre, said today the rally in silver prices was also fuelled by investors buying the metal to protect themselves against inflation, which they fear could be rekindled by the dollar’s weakness.

On an historical basis, silver is still relatively cheap compared to gold, which some investors believe could set the stage for further rises, they said.