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Precious Metals

Silver starts to get some of the investor spotlight Add to ...

The "poor man's gold" is gaining momentum.

While silver has long been overshadowed by gold as an investment, the surging price of the yellow metal this year is helping to drag its cousin into the limelight again.

Silver for December delivery settled last Friday at $20.82 (U.S.) an ounce on the New York Mercantile Exchange - the highest level in the three decades since the Hunt brothers of Texas tried to corner the silver market in 1979. It closed Tuesday at $20.64. 

Many of the same factors driving gold higher are also propelling silver. In both cases, investors are looking for havens from fears of slumping currencies and future inflation.

Just as with gold, opinions are sharply divided on silver's future, with some investors trumpeting its potential for further gains, while others are busily selling down their stockpiles to take advantage of the recent high prices.

It was once difficult for small buyers to invest in silver, but North American investment firms have been launching silver-related investments since the white metal bottomed at less than $10 an ounce during the global credit crisis in late 2008.

We are looking for the price to trade at $16 to $22 over the next couple of years. Jeff Christian, CPM Group

In Canada, Sprott Inc. filed a preliminary prospectus for Sprott Physical Silver Trust, a closed-end silver bullion fund to be listed in Canada and United States, possibly as early as this fall. And Bullion Management Group Inc. plans to roll out a silver-bullion mutual fund early next year.

Jeff Christian, managing director of New York-based metals consultancy CPM Group, is upbeat on the metal near term. "It [silver]could go possibly as high as $22 an ounce, and over the several months it could spike as high as $25," he said. "Our expectation [then]is that the price comes off a bit, but not all that greatly. We are looking for the price to trade at $16 to $22 over the next couple of years."

In addition to silver's appeal as a haven, it may also benefit from stronger industrial demand in an economic recovery, Mr. Christian said. Also, momentum investors are buying it simply because it is going up.

Related contentSilver chart

Nick Barisheff, president of Bullion Management Group, expects silver to move higher by year-end if it tracks gold in the same way it has done over the past five years.

During that period, gold prices in the last quarter of a year have on average risen by twice the amount they have during the first three quarters. If this year follows that pattern, gold would hit $1,500 an ounce and silver would reach $23, he said.

Don't Do It

David Morgan, a U.S.-based precious metals analyst and author of The Morgan Report newsletter, expects silver to be at $21 an ounce or higher by year-end, but does not recommend jumping into the silver market at this moment because he expects a sharp stock market correction that would also hurt silver prices.

"I am sitting on the sideline now because I am expecting a pullback," said Mr. Morgan, who on Monday sold 25 per cent of his silver and gold positions that he uses for trading.

"Factors I look at are indicating the stock market is topping out here," he said. "I am looking for the Dow to come down … to 8,500 within the next couple of months."

Jon Nadler, senior analyst at Montreal-based Kitco Metals, said silver could hit $23 an ounce, but suggested that investors treat the metal as a speculative play.

"The silver market has become almost entirely dependent upon investment demand and ... demand [from exchange-traded funds]" he said. "Such demand at best is cyclical, fickle and tends to get up and leave when conditions change."

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