Silver Prices: The Best is Yet to Come

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It's hard not to get a bit nostalgic about silver prices.

I find myself reminiscing about April 2011 when the white metal ended the month at a sterling $48.70 an ounce after hitting an all-time intraday high of $49.51. That record surpassed the previous high of $49.45 set three decades earlier when the Texan Hunt brothers set out to corner the silver market.

Since the 2011 peak, the S&P has roared higher by some 50%, while the value of silver has tumbled 53%. That's not nearly as bad as the drop silver experienced between its Hunt brothers induced high on Jan 1, 1980 through its low on June 21, 1982, when silver fell a devastating 90%.

Those declines are a reminder of just how volatile the metal's price can be. But with great risk comes great reward, and we see record-breaking gains ahead...

Silver Prices "Like Gold on Steroids"

With the Dow Jones Industrial Average and the Standard & Poor's 500 Index continuing to log fresh milestones, silver investors feel left out.

Yet, as I longingly look at my silver collection, beyond the pining I see profound potential.

You see, silver doesn't typically move in step with equity markets.

In fact, it often moves paces ahead. Silver has outperformed the S&P on an annual basis 43% of the time, Ken Winans of Winans International, a California-based registered investment firm, recently told USA Today.  

Moreover, because silver has a high beta, meaning it moves disproportionally compared to other metals in both bull and bear markets, it's frequently the favored metal because of its stellar possibilities.  

While silver often trades in tandem with gold, precious metal experts like our resources expert Peter Krauth like to best describe the white metal as "gold on steroids." 

Why Silver Prices Will Shine

The pullback in silver prices has provided a value-backed opportunity for savvy investors. Here's why.

  • Money printing by central banks, and the relationship with gold and silver, has broken down over the past year-and-a-half, with the metals trading sideways at best.

    But that zigzag trend can only be temporary.

    Although data suggests inflation is currently not a problem, everyone remains on inflation watch. The liberal printing of greenbacks will eventually lead to inflation, and bringing it down again may require a policy induced recession. Silver provides an inflationary hedge.

  • Robust silver investment demand continues to be a price driver. The U.S. mint sold a record 4,087,000 American Silver Eagles in April, shattering the previous all-time April sales record of 2.8 million in 2011 by a whopping 41%. In addition, the Mint is on pace to sell nearly 55 million Silver Eagles in 2013.

    Demand for physical silver has never been stronger. Dealers worldwide report depleted inventories and frenzied interest.

    "The increased demand for our products, particularly physical gold and silver, has been constant - strong enough to cause supply challenges in fact, which is to be expected," Jake Haugen, VP of sales for Texas-based Provident Metals told Money Morning.

    "As investors continue to take this opportunity to accumulate metals, it can be a struggle to keep popular products in stock," Haugen added.

  • While silver has an illustrious reputation for its use in coins and jewelry, silver's primary use is in industrial applications. Because it's the best thermal and electrical conductor of all metals, it's malleable, can be ground into powder, turned into paste, shaved into flakes, converted into salt, alloyed with other metals, and its photosensitivity makes it ideal for use in photography, silver is increasingly in demand. It's used for both old products and new innovations ranging from smartphones to solar panels to medicines.

    Accelerating manufacturing activities and an overall expansion in the global economy is expected to further boost silver's fabrication demand this year, according to precious metals research firm Thomson Reuters GFMS.

    Both industrial and investment demand for silver is growing faster than the annual increase in mining production growth. Available inventory is low and will only get tighter. The result will be a narrower supply-demand situation. 

Silver is unlike any investment at a bank, brokerage house or hedge firm. It's tangible and will always retain some value.

I am not always a glass-half-full kind-of person, but when I look at silver I see only its upside.

For more on silver prices in 2013, check out 5 Factors That Will Push Silver to $250 an Ounce.

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