Silver prices on the rise

01:07, Jun 14 2010

Silver prices could rise to $US21 ($NZ30.40) an ounce by the end of the year on the back of gold's coattails and an industrial demand recovery, said Philip Newman, research director of respected precious metals consulting firm GFMS Ltd on Sunday.

Demand of silver in photovoltaic cells in the solar-power industry was off to a strong start in 2010, which could further boost silver fabrication demand, he said.

"We expect the gold price at the end of the year to be testing the $US1300 level, and with that, you could see silver breaking through $US20 and maybe coming close to the $US21 level," Newman said in an interview at the sidelines of the International Precious Metals Institute (IPMI) annual get-together in Tucson, Arizona.

Silver, sometimes dubbed "the poor man's gold", is largely consumed by the electronics and other industries, jewelry and silverware, and photography.

As a result, the white metal is sometimes traded by investors as a precious metal, but at times, it displays the market characteristics of a base metal.

Year-to-date, the price of gold has gained more than 12 percent as investors piled in due to ongoing economic jitters, while silver was up only 8.5 percent because of its heavy industrial application.


Asked if the traditional positive correlation between silver and gold could further weaken, Newman said, "Our view is that toward the end of the year, the correlation between gold and silver will reconfirm itself quite strongly."

"Those safe-haven qualities that will help drive gold higher will also drive silver. So, you will see the two of them moving together."

On Sunday, silver was at $US18.25 an ounce and gold traded at $US1230.

The price of silver hit a high above $US21 an ounce in 2008, but was still below an all-time high of over $US50 an ounce in 1980 as a result of market manipulation by the Hunt Brothers in Texas.

Newman said that silver prices should be underpinned by recovering industrial demand, which is largely insensitive to metal prices.

In 2009, industrial demand posted a 21 percent drop, the largest drop in 20 years, representing only 48 percent of total silver demand, London-based GFMS said.

The use of silver in solar cells remained a bright spot for the metal, despite possible over-capacity in a drive for cleaner alternative energy, Newman said.

"Photovoltaic is absolutely helping industrial demand. It was one of the few areas where there was substantial growth last year."

The IPMI conference, which is attended by refiners, manufacturers and other users in precious metals, continues until Tuesday.