Precious metals made a comeback in 2010 because of ongoing concerns over the global economic outlook, worries about inflation in the U.S. thanks to the quantitative easing programs by the Federal Reserve, and also the lingering debt crisis hitting many Western nations. The much ballyhooed gold prices surge saw the metal reach over $1400 (COMEX Gold) to the tune of a 27.43% increase in price YTD as of this writing; however, seemingly little has been said about silver’s surge in price to over $30 (80.55% YTD, COMEX Silver).
Silver’s role as an industrial metal makes it susceptible to manufacturing; as industrial production rises so do silver prices and vice versa. Worth noting is that 30% of silver comes from primary producers (i.e. silver mines), while the other 70% comes as a byproduct of mining other materials used in production such as lead, zinc and copper. Therefore, if one is under the belief that the economic crisis will continue, demand and production of industrial material will drop – straining the supply of silver. Of course, decreased manufacturing levels will weaken demand for silver – but given the existing deficit in supplies and the surge in investor demand the overall supply/demand levels remain favorable.
Investors and central banks have been buying gold and silver to hedge against the greenback’s decline. The US dollar, the world’s reserve currency, is losing its value as the Fed prints more money, while the running US budget and trade deficits also work against the value of the currency. So as the price of gold is becoming increasingly too high for common investors, the silver investments should become all the more attractive and price could continue to rally in the New Year.
http://www.dailyfx.com/forex/fundamental/article/special_report/2010/12/31/Silver_Prices_Forecast_to_Rally_Further_in_2011.html
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