Silver is not so much a poor man's gold anymore, and investors might soon realize that the white metal is the real treasure.
True, at $17 an ounce, silver is cheap, trading around a 65th of gold's record price of more than $1,100. But this year it has climbed 52% in value compared with gold's rise of about 25%, according to FactSet Research.
Silver is a precious metal, after all, one that historically has outperformed gold in a bull market and doubles as an industrial metal. And supplies are declining much faster.
"Silver is unique in terms of being both a monetary and an industrial metal," the Bullion Services Team at GoldCore said in a recent report, pointing out that silver is severely undervalued. "Silver remains the investment opportunity of a lifetime."
Gold prices have climbed nearly 11% in the past two months, while silver has risen by only 3.1%.
And "investors looking for returns continue to wager on higher gold prices, whether it be on concerns over equity or currency markets . . . or to make quick short-term profits," according to CPM Group's latest Precious Metals Advisory.
But investors would be better served to turn their eye toward silver.
Silver glistens, too
"Silver is highly correlated to the safe haven of gold and is, in effect, a leveraged sister of the precious yellow metal," according to GoldCore, an international bullion dealer. "Thus, informed investors use gold more for wealth preservation purposes and silver in order to make a return."That's particularly important to keep in mind as investors change the way they perceive the paper-asset markets.
As stocks, currencies, bonds and other paper assets have begun to disappoint investors, investor attitudes have been shifting, said Mark Leibovit, the chief market strategist for VRTrader.com.
"What begins as a trickle ends as a tidal wave when the panic peaks. When public revulsion at the U.S. dollar begins, the tidal wave will become a tsunami," he said.
Under that scenario, "silver, far more volatile than gold, will benefit most."
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Silver over gold?
Forced to pick just one, Chris Mayer, the editor of Agora Financial's Capital and Crisis, said he'd rather own gold, though other people disagree."Silver does not have the same appeal as gold," Mayer said. "What did India's central bank buy in record amounts . . . (and) what did China double its reserves of this year? Gold. They aren't buying silver.
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"It's not like comparing oil with (natural) gas, where you are comparing the energy equivalent of the two and there is some economic incentive when the gaps get very wide to switch to one or the other at the margin," Mayer said. "That doesn't exist with silver and gold."
And when the global industry remains mired in a slow growth pattern, the market is not going to see sky-high prices for a metal whose "lion's share of demand comes from its industrial applications," said Jon Nadler, a senior analyst at Kitco Metals.
It's really silver's "precious side that is holding it up right now," said Ed Bugos, the director of mining finance at Strategic Metals Research and Capital. "Its industrial side would be overvalued" with the ratio of silver to other commodities having reached new highs.
Silver as a hedge
The investment figures for silver show this loud and clear."Silver's allure as an investment is ever more appealing as a hedge against fading fiat currencies that are getting inflated into oblivion," said Scott Wright, an analyst at financial-services company Zeal.
This is "measurable via skyrocketing investment demand" for physical bullion and exchange-traded funds, he said, pointing out that the iShares Silver Trust (SLV, news, msgs) exchange-traded fund has already increased its holdings 29% in 2009.
From the start of this year through October, total silver holdings in exchange-traded funds were up 36.3%, according to data from CPM Group.
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