After a 48% jump last year and a sharp rise to a near-two-year high of $19 an ounce in early May, silver prices have fallen back by almost 10%. But the white metal’s bull run from around $5 in 2001 is unlikely to be over just yet.
Silver is both a precious and an industrial metal. Industrial uses account for around half of demand, according to metals consultancy GFMS. Industrial demand is expected to rise by 12% this year, reckons Barclays Capital. More and more uses are being found for this versatile metal all the time. Sectors using silver range from electronics to medicine and it has strong anti-bacterial properties.
But the main impetus behind the recent price rises has been investment demand. As a precious metal, silver is a safe haven, like gold, and it tends to mirror gold’s movements – but with bigger ups and downs, as the market is smaller. “Silver responds well to inflation, as well as serious ‘financial dislocations’ (to put it nicely),” says Jeff Clark on Financialsense.com. In the 1970s, it rose by more than 500%.
With government debt piling up and deflation threatening to make the problem worse, the danger that governments will be tempted to debase their currencies by inflating debt away is increasing. Those willing to bet on this extremely volatile metal can track the silver price via a London-listed ETF (PHPP).