There’s more upside yet for silver

Silver has bounced by 16% to just over $17 an ounce since early February. That follows a 48% jump in 2009 – and the run may not be over yet. Silver benefits from “a split personality”, says Bart Melek of BMO Capital Markets. As a precious metal (known as ‘poor man’s gold’), it is a safe haven that tends to follow gold’s movements. However, given the market is much smaller, it is also usually far more volatile. But it is also a base metal, with industrial use accounting for 50% of demand. It is found in everything from computer keyboards to washing-machine control panels, and it also has antibacterial properties.

According to CPM Group, industrial demand for silver should keep growing, rising by 5.8% this year after a sharp drop in 2009. Investment demand is solid, with 474 million ounces now held by global silver ETFs, after 150 million ounces were added last year. And there is plenty of scope for safe-haven demand to rise given the risk of further financial blow-ups (see page 8), sovereign debt problems and dwindling faith in paper currencies. “We are still living in uncertain economic times,” says The Sovereign Society. “Hard money rules.”

The ratio between the gold and silver price also suggests there’s more mileage in the white metal. It’s at 65:1, above the average of the last 100 years, which is about 45:1. Melek reckons silver is heading for $19-$20.