Of all asset classes, precious metals are the most undervalued and silver in particular is one of the most undervalued commodities. Silver and gold have outperformed most asset classes, property, and equities when measured over three, five, and ten year periods. Silver is currently trading at just over $18 per ounce and forecasters believe it will soar to an inflation adjusted peak of $130 per ounce by 2015.
The reasons some analysts predict a drastic increase in silver prices are due to the floundering world economies, the declining silver supply, significant industrial demand, the role of silver as store of value, its use as currency, and increasing investment demand. When the global economy faces challenges and risks, investors buy silver and gold as a safe haven. This is evidenced by the recent drive to purchase gold coins and bullion.
Silver is not only a safe haven commodity, is has a role as currency and this monetary value cannot be devalued as paper money can. Silver has the distinction of being used as money for longer periods and in more places than gold. According to Nobel Laureate Milton Friedman, “The major monetary metal in history is silver, not gold.”
There are fewer than one billion ounces of refined silver in the world. More than 90 percent of what has ever been mined is used by industry. This industrial demand has continued to outpace silver supply during the past 20 years. Though production has recently remained flat, government supplies and other stockpiles have helped to keep the price down. These sources are running dry and if history is any indication, supply will not necessarily respond to the increased demand.
Investment demand has begun to impact the price of silver, with the iShares Silver ETF being largely responsible. This ETF represents over one-third of the global market for silver and increasing investments in it will likely drive silver prices higher. In addition, the short position in silver futures has grown so large that it must be resolved and this will lead to skyrocketing silver prices.