Will the Price of Silver Go Up in 2013?

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After this week's performance, we're getting more questions along these lines from Money Morning members: Will the price of silver go up in 2013?

Silver prices closed out a volatile week down $0.91, or 4.61% at $18.81. This week's loss continued silver's painful slump in 2013.

The white metal, down roughly 35% year-to-date, has even fared worse than gold, which is down about 20% in 2013. The serious slump in gold prices, tame inflation and record stock market rallies has taken some of the shine out of silver this year.

Since silver is more volatile than gold, it has underperformed - typical of a bear market.

Money Morning's Resource Specialist Peter Krauth explains, "Because the global silver market is relatively small,

silver prices tend to be more volatile. But volatility works both ways, so when silver rises, its price can explode higher. That's exactly what happened in April 2011, when silver prices rose by 170% in the space of just seven months. That's why silver investors say investing in silver is like buying 'gold on steroids'."

So will silver go up this year, or is it destined to disappoint?

The Price of Silver in 2013

The current gold/silver ratio suggests a sustainable improvement for silver.

The gold/silver ratio is calculated by dividing the price of gold by the price of silver. When it hits extreme levels, like we are seeing now, it can potentially signal a turning point. The ratio now signals a silver rally is likely.

Late last week, the number of dollars needed to buy one ounce of gold would buy 66 ounces silver, compared to around 55 at the end of 2012. The current numbers make the white metal seem very cheap relative to its yellow counterpart.

And although silver investment demand has cooled off a bit, increased industrial demand is projected to add some polish to silver.

Want to know more about investing in silver related stocks? We've got the latest for you here: The Best "Bargain" Silver Mining Stocks to Buy Now

"Silver is both investment and industrial demand," George Gero, VP and precious metal strategist with RBC Capital Market Futures told Kitco. "If they (forecasts for an improving economy) are right about industrial demand returning, silver should perform."

According to The Silver Institute, more than 95% of annual silver consumption stems from industrial uses, photography, jewelry and silverware. That leaves just 5% of total use as a store of value. Compare that with gold, where about 60% of use comes from jewelry, 30% as an investment and roughly 10% for technological and industrial applications.

In addition, investors remain net buyers of silver. The U.S. Mint was forced to ration silver supplies to authorized dealers several times this year amid frenzied buying. And, the recent dip in prices has again bought out bargain hunters both here and abroad.

Jake Haugen, VP of sales for Texas-based Provident Metals recently told Money Morning the recent price action of silver "caused an 800% increase in the average demand for our products."

Haugen continued, "We're actually excited for our customers, prices are favorable and they love to add to their position during the dips!"

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