Temperature rises in the silver market

"Silver fever" has broken out, says Ellen Kelleher in the FT. While gold has gained around a quarter this year, the white metal is up by more than 65%. Indeed, at $27 an ounce it is close to a 30-year high.

So it's no surprise silver coins are selling at a record pace. The Royal Canadian Mint expects this year's sales to be 50% higher than 2009's record. Precious metals consultancy GFMS says coin investors could soak up nearly 25% of the overall supply of the metal this year. And silver holdings in exchange-traded funds backed by the metal reached a new record last week.

But investment demand for "poor man's gold", as the cheaper traditional hedge and store of value is often called, isn't the full story. Around half of demand stems from industry. What's more, it is "very strong back to 2008 levels or even better", says Scott Morrison of Metalor. Silver is used in sectors ranging from medicine (it has anti-bacterial properties) to electronics. Demand from the solar-panel sector has been especially buoyant. Industrial demand is expected to rise by 18% in 2010, yet looks set to ebb next year as global growth slows.

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However, the outlook for investment demand remains encouraging. Silver tends to shadow the yellow metal. But it magnifies gold's moves in both directions, as the silver market is much smaller than its gold counterpart. Both gold and silver should continue to benefit from the "ever-declining level of faith in the integrity of the global financial system", says Gluskin Sheff's David Rosenberg. Europe's ongoing debt crisis, America's inflationary money-printing and recurrent jitters about currency wars and protectionism are undermining faith in paper currencies and enhancing the appeal of safe havens. "We've all grown up with this total blind confidence in paper [money]," says Edward Ennis of Rothschild Private Bank. "Now there are cracks appearing."

GFMS see investment demand reaching a new record next year, propelling silver above $30. For those tempted by a punt on this notoriously volatile metal, the London-listed Physical Silver ETF (PHSP) tracks the spot price.