What’s driving the price of Silver?

Spot silver, January 2011 to Februrary 2012, daily

The oversupply of silver is well documented, and yet the pale metal is up almost 20% in 2012, outperforming Gold (+10.31%), the S&P 500 (+8.24%) and Oil (+5.04%) – why? Rather than one there are many factors and I’ll try to list them in order of (what I perceive to be) importance: first exchange trading products such as iShares Silver Trust (SLV) or Physical Shares Silver Trust (SIVR) are now holding record levels of the metal. These funds allow silver to be traded on the stock rather than metals exchange, thus widening the appeal and ease of holding silver. Coin sales rose from 3.2K tons in 2010 to 3.4K tons in 2011 (Barclay’s Capital) and are forecast to hit another record high in 2012. But one of the more important reasons is demand for gold; silver is often known as “the poor mans gold” since its much cheaper ounce for ounce, but still offers one of golds less tangible advantages: a store of value. Gold – and by induction silver – offer protection against government led debasement of currency such as Quantitative Easing (US and UK) and Long Term Refunding Operations (Europe). Forecasts for Silver are looking pretty good, and that’s even before the views of conspiracy theorists are taken into account. So, yeh, I’m still long Silver and, in fact, still buying. Just watch out for volatility though.

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