Silver gains favor as an investment asset

Silver has become more popular and volatile than ever and is ready to finish the year with gains more than double those of gold. It is clear that investment and not industrial demand is what's driving silver prices higher and one company predicted net investment would jump 82 million ounces to 234 million in 2012.

By Myra P. Saefong
Dec. 7, 2012, 8:26 a.m. EST
Market Watch

SAN FRANCISCO (MarketWatch) — Silver’s more popular and volatile than ever, ready to finish the year with gains more than double those of gold, as the industrial staple wins more favor as an investment asset.

“The evidence is clear that investment, not industrial demand, is what is driving silver prices higher,” said Mark Thomas, chief investment strategist and author of SilverPriceAdvisor.com.

Last month, Thomson Reuters GFMS said investment demand will likely be the prime driver of the silver price this year.

The precious-metals consultancy forecast that implied net investment would jump 82 million ounces to 234 million in 2012 from 2011, even as demand for silver in industrial applications is expected to fall nearly 28 million ounces.

Investment interest also shows in holdings of silver global exchange-traded products, which — at around 600 million ounces as of Nov. 23 — were close to an all-time high, according to ETF Securities.

“Current investors in silver now have survived a parabolic rise, a subsequent plunge in price and some extremely dramatic wide trading ranges,” said Thomas. That means “current owners of silver are very solid, committed, long-term investors.”

The iShares Silver Trust SLV -0.15% has recovered from last year’s 11% drop and then some, tacking on nearly 19% year to date.

“Many analysts tout silver’s dual role as an industrial metal as an added advantage,” said Brien Lundin, author of the Silver Bullet Strategy, published by Gold Newsletter. However, “it is silver’s monetary utility that justifies its current valuations, and that is the only basis on which it should be analyzed in the current environment,” he said. Advantages

Even with a backdrop of weak economic growth, silver can benefit from its dual roles.

“On the industrial side, the demand for silver is not just discretional,” said Julian Phillips, contributor and founder of SilverForecaster.com, meaning that it has uses in applications that are deemed necessary so it’s used even in the event of a recession. If there’s a “downturn or flat economy combined with uncertainty and a decaying monetary world, then investment demand is high,” said Phillips. Silver “wins both ways.”

Following recent declines, silver may be a bargain too.

“Silver is increasingly seen as an undervalued asset and its strong consolidation levels around $30-$33 are seen as a buying opportunity,” said Paul Mladjenovic, author of Precious Metals Investing for Dummies. “Silver is also getting more acknowledgment as being more scarce and more affordable than gold.”

On Thursday, silver futures SIH3 -0.36% closed at $33.11 an ounce, down over 4% since the end of September, but up around 19% year to date. Gold GCG3 -0.02% , on the other hand, has gained nearly 9% for the year so far, following a Thursday close at $1,701.80.

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