Silver set to shine in 2012

Talk of precious metals and investors’ minds almost automatically turn to gold, while its side-kick, silver, takes a back seat.

Yet, if history is to repeat itself, maybe investors should be paying more attention to silver.

In the latter part of the 1970s precious metals bull market, gold gained over 700%, but it was silver that soared a breathtaking 1400%.

“Silver is the second-most-useful commodity known to man after oil, with over ten thousand uses,” explains Mike Maloney, author of Guide to Investing in Gold and Silver: Protect Your Financial Future. “When you’re typing on a keyboard, you’re typing on silver. When you look at a DVD or CD, you’re looking at silver. When you look at a mirror, you’re looking at silver. It’s everywhere” he said.

In fact, silver’s wide industrial use due to its superior electrical conductivity and catalytic properties has been the vital element in the rise of the price of silver. According to The Silver Institute, industrial application accounted for almost half of silver’s demand in 2010.

But that may not be the case anymore. “What’s going to drive the price for silver is investment demand,” voiced Maloney. “When gold gets too expensive for the public, they switch their preference to silver. This is what happened back in the late 70s and early 80s. Silver lagged gold, and then exploded as gold got too expensive.”

This rings true. Investors may hesitate plunking down $1,700 (£1,085) for an ounce of gold, but they could pick up more than 50 ounces of silver for the same amount.

Thomson Reuters GFMS reflects this view. In its report, The Silver Investment Market – An Update published in November 2011, it says that “a good part of the reason for the growth in investor interest in silver has been the continued rally in gold – the white metal arguably providing a less costly and more leveraged alternative to the yellow one”.

And figures published by The Silver Institute are testament to this – investment demand as a portion of total demand has been growing considerably in the past two years and accounted for more than a quarter of the total demand in 2010. This is a far cry from 2001 to 2008, during which investment demand made up about 7% of total demand.

Accordingly, banking giant HSBC has raised its silver price forecasts for 2012 and 2013 amid expectations that strong bar and coin investment demand, coupled with growing interest in silver ETFs, will boost the market.

It now expects the silver market to average around $34 a troy ounce in 2012 and $32 an ounce the following year – both signalling a 2% increase on its earlier forecasts.

Analyst James Steel said: “Silver prices will reflect the interplay of many factors. The single biggest bullish factor, in our view, will be renewed investment demand.”

HSBC sees ETF demand absorbing as much as 50 million ounces of silver in 2012.

Morgan Stanley is also backing silver, along with gold, as its preferred commodity for next year. Analysts Hussein Allidana and Peter Richardson said the defensive nature of the metal will create significant investment demand as investors clamour for a safe haven amid the volatility in the global financial markets.

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Posted by Silver Guru on Dec 9 2011. Filed under Silver Analysis, Silver prices. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry