Silver News

From Barron's:

The Other Coin of the Realm
By ALLEN SYKORA

With demand building, the "poor-man's gold" looks ready to rally.

INDUSTRIAL COMMODITIES GOT GUTTED again last week, yet a bright spot remains -- in silver futures. While they've hugely sold off since hitting historic highs around midsummer, demand for coins and bars remains strong, setting up the metal for a rally through next spring.

Last week's action made silver's price even more attractive. At one point December silver was up $1.03 an ounce for the week, as global stock markets melted on credit-crisis fears. But silver then got caught up in selling across commodities in the final hour of trading, to settle Friday at $10.60, down by 72.5 cents, or 6.4% on the week.

Silver futures are off 46% from a mid-July high of $19.705 an ounce, and hit an interim low of $10.31 in September).
The Continuous Commodity Index, an updated version of the CRB which tracks the overall performance of the commodities markets, set a 14-month low Friday at 392.33, off its July high of 615.04.

Numerous haven-seekers bought gold in the past month, but many more investors can be expected to seek silver. "When gold takes off, people will look for a cheap alternative," says Gijsbert Groenewegen, managing partner of Gold Arrow Capital Management. "That's why silver is called poor-man's gold."

Coin and bar sales have been so robust -- the U.S. Mint now is rationing American Eagle coins -- that dealers say they can't meet small-investor demand.

"That's going to continue, because the economic problems the world is facing...are probably going to get worse," says Jeffrey Christian, managing director of commodities researcher CPM Group. "Sooner or later, physical trumps paper [markets] and the price of silver goes back up sharply."

Analysts look for the price of the white metal to rise to between $14.50 and $24 by the end of next year's first quarter. December gold has rallied already from a 2008 low last month of $739.80 to a Oct. 10 peak of $936.30. Silver could soon follow that trend. This is especially the case since above-ground silver inventories are less than in gold, says Jon Nadler, analyst with Kitco Bullion Dealers.

"Even though we didn't have a significant gain in the last two weeks of total chaos, it could still happen," Nadler says, noting that silver historically was viewed as currency before gold.

Silver lagged in the past month, since it relies on demand, unlike a monetary asset, says Bart Melek, BMO Capital Markets commodity strategist. Uses include jewelry, dentistry, electronics and more. "Those will be impacted by the slowdown globally in manufacturing and consumer spending," Melek adds.

When the economy turns around, it should add luster to silver by increasing industrial demand, analysts say. Furthermore, newer uses for silver are replacing lost photography demand. Silver conducts electricity at lower heat loads than other metals, and is used in laptops, cellphones and iPhones.

One sign of investment is that holdings in iShares Silver Trust (ticker: SLV), an exchange-traded fund, hit 200 million ounces for the first time in July, and were up to 220 million on Thursday. Since many types of coins and bars are hard to obtain, Christian says, some haven-seekers "buy the ETF instead."
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