Silver price soars on heavy demand, high hopes for gains
John Waggoner, USA TODAY
Silver has soared to $18.45 an ounce from $10.79 at the start of 2009, a 71% gain. In contrast, gold has gained 32%, closing at a record high of $1,141 Thursday. [Nov. 19, 2009]
But silver is nowhere near a record. When gold hit its 2008 high of $1,011.25 an ounce in April of that year, for example, silver continued to rally to $19.30. And it is nowhere near the record high of $49.50 an ounce it hit in 1980, when Nelson and William Hunt unsuccessfully tried to corner the market.
Pushing silver higher now:
•Gold. Gold and silver often move roughly in tandem, prompted by fears of inflation and the lower value of the U.S. dollar on the currency markets.
•Heavy demand. At $18.45 an ounce, silver is far more affordable than gold. Sales of Silver Eagles from the U.S. Mint have soared to 25 million 1-ounce coins so far in 2009 from 19.6 million for all of 2008. Demand has been so high that the U.S. Mint is making only 1-ounce silver coins and no proof sets – high-quality collector issues.
Another source of demand: silver exchange traded funds, which invest directly in silver bullion. The iShares Silver Trust (ticker: SLV) has $5.4 billion in assets and is growing in popularity as the white metal soars. Several foreign silver funds are also big bullion buyers.
•Big hopes. People expect silver to play catch-up, says Jeff Nichols, senior economic adviser for Rosland Capital. It usually takes about 16 ounces of silver to buy 1 ounce of gold. Now it takes about 62 ounces of silver to buy an ounce of gold. "We expect the gold-silver ratio to move toward its historical mean as silver outperforms gold in percentage terms over the next few years," Nichols says.
Unlike gold, which is used mainly for investment purposes, about 50% of all silver goes for industrial uses, according to The Silver Institute, a trade group. Although silver is still used in film photography, it's mainly used in electronics now, says Philip Klapwijk, CEO of GFMS, a precious metals consulting firm.
Because of the worldwide economic downturn, industrial use of silver has fallen.
Yet demand for silver could pick up.
"Longer term, much of the growth in industrial demand will come from silver-zinc batteries that will be replacing lithium-ion batteries in electric cars," Nichols says.
usatoday.printthis.clickability.com/pt/cpt