Investing in Silver: Price Rally Gets Legs

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In a week chock-full of potentially bullish news for those of us investing in silver, we weren't disappointed. Silver prices enjoyed a solid rise this week.

Silver prices hit six-month highs Friday and headed for a 2.5% weekly rise.

Investor interest has piqued after months on the sidelines and just in the last month, silver prices jumped more than 20%.

Believe it not, its gains have outpaced gold's rise – which hasn't been too shabby with its own 10% increase in the same time period.

Silver ETFs have also soared during this time. The iSharesSilver Trust ETF (NYSE: SLV) is up 24.2% to $33.38, outpacing the 10.7% rise in SPDR GoldTrust ETF (NYSE: GLD), which is up to about $171.00.

But why does it seem like few people have noticed the silver bull party?

ETF Daily News wrote that silver's "move has been gradual and steady, as opposed to a number of days withhigh movement. Over that same time period, gold has jumped by about 9.5% with about 100 times the attention from analysts and investors around the world."

Silver's recent volatility, which is always more so than its fellow precious metal gold, is another reason for its outperformance. The price ratio between the two precious metals since mid-August has moved about 10% in silver's favor.

Even more interesting, since the beginning of the year, silver has outperformed gold – this is a first.

But anyone considering investing in silver could perk up to the white metal now that the U.S. Federal Reserve has given commodities more reason to shine.

QE3 and Silver Prices

The conventional wisdom was silver prices would rise after the Fed meeting – and that was spot on.

On Thursday, the central bank said it would purchase $40 billion of mortgage-backed securities each month in QE3 and extend Operation Twist.

The silver bulls came rushing back into sight, ushering in the precious metal's coming-out party thanks to its sensitivity to monetary policy. The September silver contract rose 4.5% Thursday to settle at $34.716 a troy ounce; this was the highest level since March 1.

The best news: The Fed's announcement to resume bond-buying will give this silver rally some legs.

Li Ning, an analyst at Shanghai CIFCO Futures told Reuters, "The Fed's move will flood the market with liquidity, which will consequently push up inflation and drive investors to assets known to be good hedges, such as good and silver."

"Silver is poised to test the next resistance level at $35.4," another Shangai-based trader told Reuters. "The sentiment remains bullish, as many investors are just entering the market after confirmation of the Q3 overnight."

And if you need further evidence of silver's rally take a look at Silver Wheaton Corp.'s (NYSE: SLW) share price. This company has deals with silver miners worldwide in exchange for a portion of their production.

With 340% profit growth and 76% revenue increase in the last three years, it had a great summer and saw its shares jump $2.05 (5.7%) to $38.27 on Thursday.

Year-to-date, it's up 31.77%.

The company's executives see additional upside, partially attributable to the Fed's actions.

Randy Smallwood, president and CEO of Silver Wheaton said to International Business Times, "We see silver prices continuing to climb. We are very bullish."

For now, anyone investing in silver should expect the bulls to stay out for a while, extending its run as the hot precious metal to buy now.

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  1. anil | September 15, 2012

    yes right gold,silver go upside

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