Silver?s still looking good Backwardation, inelastic supply, demand bode well for silverView all Commodities Corner ?
|Recommend (4) PrintEmail AlertBy Myra P. Saefong, MarketWatch SAN FRANCISCO (MarketWatch) ? After an impressive rally in silver that?s lifted the metal?s value by nearly 70% in just the last six months to a three-decade high, it?s only normal for investors to wonder whether the run is built to last.
The short answer from most analysts is yes, but there are some reasons why it may be on shaky ground, and lots of reasons why silver?s bound to trip and fall a few times.
A large part of silver?s rally has come from bets that demand for the metal from the investment and industrial sectors will continue at a remarkable pace.
?Silver will outperform gold because of its industrial uses, together with the fact that the number of potential investors is far greater,? said Julian Phillips, an editor at SilverForecaster.com and GoldForecast.
Silver prices /quotes/comstock/21e!f1:si\h11 (SIH11 3,262, +105.00, +3.33%) trade above $31 an ounce in New York ? that?s a 68% jump from the $18.40-an-ounce level they were trading at in mid-August of last year and around seven times what it sold for a decade ago at $4.50.
That?s quite an impressive return that even gold can?t match. Gold prices /quotes/comstock/21e!f:gc\j11 (GCJ11 1,389, +4.30, +0.31%) are up around 12% since mid-August. At nearly $1,400 an ounce, they?re trading five times higher than the $266 level they saw 10 years ago.
?As gold gets more expensive, the cheaper price of silver is [more attractive] relative to gold,? said Mark Leibovit, chief market strategist at VRTrader.com.
And since no one can really predict the exact moment silver prices will explode to the upside, ?you have to have chips in the game,? he said. ?I would buy silver now and at any time.?
Rising investment demand for silver has certainly been key to silver?s impressive performance.
Silver is known as ??poor man?s gold?, and the cheap way into holding precious metals for financial security,? said Phillips, noting that investment demand is taking a ?considerable amount? of silver off the market with iShares Silver Trust Exchange Traded Fund /quotes/comstock/13*!slv/quotes/nls/slv (SLV 31.91, +0.12, +0.39%) holdings at around 10,000 metric tons of silver.
Zug, Switzerland-based Chris Eibl, founding partner and head of commodities trading at Tiberius Asset Management, said the silver market is in a bubble that?s likely to get bigger as long as investors continue to buy silver.
?It is clear that current prices are a pure reflection of investors,? he said, pointing out that investors account for about one-third of annual consumption.
All the right reasons Silver has been climbing for all the right reasons and most analysts believe it?s far from being a missed opportunity.
?In the same way that it is insane not to own gold today, it is insane not to own silver,? said Mark O?Byrne, executive director at GoldCore. ?Nearly all investors should have at least a small allocation to silver.?
?In the same way that it is insane not to own gold today, it is insane not to own silver.?
Mark O?Byrne, GoldCore
?Gold remains more the safe haven, but silver, too, protects against sovereign defaults and currency debasement. Gold is the ultimate financial insurance in the world, but silver comes a close second,? he said.
A ?close second? isn?t bad when the first place winner is as highly regarded as gold.
?Gold is still king because it is the deepest market and held by many central banks in their vaults,? said Gijsbert Groenewegen, a managing partner at Silver Arrow Capital Management.
And Leibovit said gold will move ?dramatically? higher, with potential anywhere from $3,000 to $10,000 an ounce in the years ahead.
But even on its own, silver has a lot going for it.
Middle East jittersConfusing stories about Iranian warships possibly entering the Mediterranean and antagonizing Israel are causing some jitters in Treasurys and foreign exchange but the U.S. stock market is more focused on domestic economic data. Silver has rallied because of a ?general positive feel? on the global economy and an overall rise in base metals such as copper and nickel, said Chintan Karnani, chief analyst at Insignia Consultants in New Delhi, as well as the plethora of new uses for silver in the medical field, solar panels and other equipment.
EVG Price at posting:
12.0¢ Sentiment: Buy Disclosure: Held
