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Silver - time to invest?

|Includes: iShares Silver Trust ETF (SLV)

Early in London trading hours silver broker the historic 2008 high of 21.34$/ounce and has remained above this significant level since then. This is the highest silver has been since it's record high in 1980. In this brief article I'll try and explore why silver has performed so well, and contemplate what's going to happen in the future.

Silver price momentum has been very consistent over the past few weeks. I have watched the price of the /si futures carefully each day, and have been pleasantly surprised at the silver price increase. Dips have so far been followed by gradual gains, and with silver's price having increased by nearly 18% over the past month, we are presented with a strong case to invest. The only significant dip that did occur this week happened just before the FOMC details were released. When Bernanke announced that Quantitative Easing was still on the table, the price jumped by almost half a cent. This demonstrates that silver seems to be proving itself on it's merits as a safe haven metal. Worries about the value of the US dollar provide a great impetus for investing in silver, and as we are seeing, investors are beginning to look towards this precious metal to store their wealth. Silver, so long the ill-performing younger brother of Gold, could now jump in the driving seat.

Silver's traditionally high volatility can now be seen as an asset for bullish investors who are looking to make a profit off of its momentum. How long can this last? If the Federal Reserve go ahead with their plan of QE, I think the price could continue it's upward trend for the foreseeable future. Also, think about how much wealth is stored in gold in relation to silver. Whilst gold has always been a traditional vehicle to store wealth, silver has historically balanced this role with various industrial uses. Silver is now also demonstrating that it is primarily used to invest wealth, and I believe that the price will rise as investors diversify their position from gold. If silver can consistently show better % gains than gold, I believe it will continue to gain in value.

For those of us who subscribe to the belief that silver price is being manipulated, the momentum demonstrated could signal an end to the sudden price spikes of the past. As more individual investors put their wealth into silver, it will become harder for institutions to manipulate the price. As Robert Keintz pointed out there are many more individual investors who are long silver than short, and as this grows it will mean future manipulation will become blatant.

Overall I would say that as silver continues to rise, it will receive more investor attention - people will realise that in relation to gold it is significantly undervalued. This, coupled with it's venture into new price territory and current momentum should allow for a significant increase in price in the future.



Disclosure: Long Silver