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Silver up 80% in 2010 but can this rate of advance continue?

Silver has been one of the best performing commodities of all in 2010, but the better part of its rise has only been in the past few weeks - can this stellar performance be maintained?

Author: Lawrence Williams
Posted: Friday , 31 Dec 2010


For quite a long time earlier this year, silver seemed to be the forgotten precious metal in terms of the markets, but a steady rise in the final four months of the year, which really took off in December, made it the best performing reasonably heavily-traded metal of the year bar palladium, which did even better in almost doubling!  In terms of the gold:silver ratio (GSR), this moved from 64.9 at the end of last year to 46.0 at the end of 2010 - but most of this change has only taken place in the past few weeks.  The bottom line is that silver closed the year in London at an impressive $30.63 an ounce a gain of fully 80% on the London close at the end of 2009.

So what does 2011 hold for silver?  One has to accept that there seems to have been a remarkable media campaign in support of silver of late.  Whether this is because of belated recognition that perhaps silver had been underperforming gold, or just the additional exposure given to silver in the light of the CFTC investigations  - but whatever the reason it appears to have had its effect.  There has also been an important element of the huge short positions in silver on COMEX being heavily reduced - again this may have followed the evidence being given to the CFTC commission causing the bullion banks to act more cautiously in what many perceive to be blatant manipulation of the markets, but it is definitely the case that the huge upsurge in the silver price has followed directly after the CFTC hearings.

There are still some observers of the silver market touting that silver will return to the gold:silver ratio of 15 (which would put silver at $94 on the basis of the current gold price, but this writer deems it highly unlikely, as the GSR of 15 was a direct result of the Hunt Brothers almost completely cornering the silver market through a huge buying spree - and market control in support of the price on this scale would seem unlikely nowadays.  That does, to an extent, make the silver price a little more vulnerable than gold.  The surge in price may have been overdone - but then markets do not necessarily follow a logical path.

One would suspect that a GSR of around 50 might be a more likely long term prospect and should gold manage another 27.7% gain this year, taking it to $1800 by the year end, then this would put silver at $36 - still a pretty good performance overall.  But investors do need to be aware that if gold should stutter, silver tends to come back faster on the downside being a more volatile performer.  Also remember 2008!  Silver was decimated in the October 2008 meltdown - and there are a number of economic analysts out there predicting another stock market collapse ahead. 

Thus there may still be upside in silver, but it remains a more risky investment than its yellow sibling.

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10 May 2013


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