BUY OR SELL-Time to buy silver, a safe-haven Cinderella

* Silver offers good short-term buy

* Investment flows supportive

* Oversupply, demand issues to cap upside

By Amanda Cooper

LONDON, Sept 2 (BestGrowthStock) – Renewed uncertainty over the
global economic outlook has revitalised the push into perceived
safe-haven assets like gold, but as bullion edges ever closer to
record highs, silver has emerged as a cheap alternative.
Dubbed “the poor man’s gold,” silver (XAG=: ) has risen by
nearly 15 percent so far this year to above $19.00 an ounce,
making it one of the top performing commodities of 2010.

The gold/silver ratio — the number of ounces of silver
needed to buy an ounce of gold — has hit its lowest since
mid-May, denoting silver’s outperformance relative to gold.

Silver’s main sources of demand are from industrial
applications such as semi-conductors and jewellery.

This confers it enough of a split personality to benefit
from the risk aversion that boosts gold, and from the risk
appetite that supports industrial commodities like copper.

However, there is a caveat. Silver is notoriously volatile
and profits in this metal can be as elusive as Cinderella, the
fairytale heroine, at midnight.

“It’s not for the faint-hearted, it’s not for widows and
orphans. You’ve got to know what you’re doing or you can be
stopped out quite easily,” said Credit Agricole analyst Robin
Bhar. “In a rising market, it does well, but in a falling
market, everybody rushes for the exit,” he said.

The intraday volatility of silver far outstrips that of gold
and is bested only by that of palladium (XPD=: ), another small
market that can fall and rise in tsunami-like price bursts.

For a chart of intraday volatility in the four major
precious metals click here:


A raft of patchy U.S. economic data in August has raised the
threat of a return to recession in the world’s largest economy,
and ignited doubt over the ability of the emerging world to
offset such a double-dip.


This renewed concern has translated into hefty inflows into
exchange-traded products backed by physical metal.

The iShares Silver Trust (SLV: ), the world’s largest
exchange-traded silver fund, has seen net inflows of around 95
tonnes in the last month alone.

“Silver ETF supporters have been conspicuously absent this
year relative to the significant ETF creations in the other
precious metals,” wrote UBS precious metals strategist Edel
Tully in a note last week.

“This less-speculative element to silver’s rally, and the
relatively sticky nature of ETF investment, suggests that silver
may now have a bit more staying power compared to previous
run-ups this summer,” she said.

Consultancy Gold Fields Mineral Services said in May this
year it expected rising investor demand to be a key driver for
the price of silver this year. [ID:nN2791660]

Total open interest in COMEX silver futures has fallen in
2010, but the managed net long silver position, which analysts
use to gauge hedge fund holdings, has more than doubled in the
last six months to some 138.9 million ounces, and the
non-commercial net long — used to gauge speculative activity —
has risen by some 35 million ounces to 174.1 million ounces.

RBS analysts Nick Moore and Daniel Major note silver should
get “reflected glory from a firmer gold price.”

“Because silver is more volatile than gold, it is often used
to finesse gold positions … and so we should be prepared to
see silver attempt to break higher in the coming weeks.”


Even if silver’s exposure to the growth cycle protects it to
an extent from an evaporation in the need for a safe-haven,
without healthy investment flows, mine supply will cap prices.

“The industrial side is more important for silver, but the
marginal demand driver tends to come from investors,” said Bank
of America-Merrill Lynch analyst Michael Widmer.

“Now, when you have investor interest subsiding, the
industrial side will become more important, but at the moment,
looking at the macro picture, I don’t see that happening.”

The offtake lost from the decline of traditional photography
— silver’s main source of demand — has not been replaced by
evolving new uses such as photovoltaic cells in solar panels.

The Silver Institute estimates mine output reached 709.6
million ounces last year and above-ground stocks were around
20.2 million ounces. Even the iShares Silver Trust only holds a
fraction of that amount, some 298 million ounces.

“The market has been in surplus for many, many years,
above-ground stocks are high… As prices move higher, you’re
going to get a lot of forward selling from producers,” said
Credit Agricole’s Bhar.
(Editing by James Jukwey)

BUY OR SELL-Time to buy silver, a safe-haven Cinderella