Since MoneyWeek grew keen on it in 2004, silver both an industrial and a precious metal has risen from under $8 to almost $14 an ounce. And the long-term outlook remains compelling. The market is extremely tight. Sixty-five years of consumption exceeding production has "decimated world silver inventories", says Ted Butler in Investment Rarities. With mined silver undershooting demand for the past 15 years, government stockpiles have fallen from 2.2 billion ounces in 1990 to around 300 million. Experts reckon that, by 2010, inventories will be "critically low", says Kevin Kerr on Marketwatch.com. Moreover, it's hard to boost production rapidly as silver is largely a by-product in other metal mines.
Industrial applications for silver are on the rise, according to metals researcher GFMS. Silver is used in film processing, medical products (it kills germs without harming the body), electrical appliances and a series of high-tech devices. Batteries, superconductors and microcircuits are areas in which new uses for silver are being explored and where new demand should increase exponentially, says James DiGeorgia of Gold & Energy Advisor. Industrial demand should keep rising long term as expanding middle classes in emerging economies aspire to Western lifestyles.
But industrial demand is only part of the story. Few realise that above-ground silver is actually rarer than gold, making it a better hedge against inflation and economic turmoil, says Butler. Investment demand is also taking off as investors seek a hedge against depreciating currencies and inflation. Last year saw the launch of a US silver exchange-traded fund, which has hoovered up a third of the silver available in the market a reminder that with a total of 300 million ounces worth $4.2bn, the market is tiny.
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If even a small amount of money flows into the silver market from retail investors, hedge funds and pension funds, silver "will almost certainly reach" its 1980 peak of $49 an ounce, says Mark O'Byrne of Gold & Silver Investments. And plenty of gold investors are likely to "jump on silver" too once the rising price highlights its rarity, says Butler. Silver is the "single best asset you can own today". Investors can now buy in through a London-listed ETF (SLVR).
