Why silver is white-hot

With the spotlight on gold’s recent rebound, silver has been ignored. Yet this year, it has soared by 43% to a ten-month high of more than $16 an ounce. Gold has gained just 12%.

Silver is unusual as it is both a precious and an industrial metal, says Zachary Scheidt on Kitco.com. When precious metals do well, silver benefits because it is seen as a store of value. Indeed, it tends to rise faster than gold as the market is smaller and less money is required to move it. As far as industry is concerned, silver is used in sectors ranging from medicine to electronics.

Investors have been looking past the slump in industrial demand over the past few months, which metals consultancy GFMS reckons troughed in the first quarter, to a rebound driven by economic recovery.

So silver has gained from both the gold and the base metals rally. These two drivers could well propel silver to $20 in the next month, according to Scheidt.

Longer term, the precious metals outlook remains promising, with jitters mounting over inflation as the dollar weakens and deficits all over the world soar; this factor should continue to underpin rapidly-growing investment demand.

Evidence that industrial demand is not strengthening as expected could dent the metal’s prospects – but if it does recover, prices could go “off to the races” beyond $20 an ounce, says GFMS’s Philip Klapwijk.

But beware. Silver can “fall so fast it can leave us breathless”, says Marc Courtenay on Seekingalpha.com. There is a London-listed silver exchange-traded fund, Physical Silver (PHSP).