Silver prices kicked off October reaching a six-month high near $35 an ounce as investor interest has been rekindled in the white metal.
Renewed investor affection for the precious metal in the past few months is in sharp contrast to investor interest in silver over the last year and a half. Many precious metals investors had largely stayed away from silver in that time frame after some had got caught up in its volatility. Silver had touched a 30-year high in April 2011 before plunging 35% in just a few short weeks.
Silver has climbed 35% from its June low just above the $26 an ounce level. This performance made it the top performing star in the commodity universe for the third quarter, with hints of more fireworks to come.
Now it looks as though silver prices will tear into the $40-plus range, nearing $50 an ounce before 2013.
Money Morning Global Resources Specialist Peter Krauth predicts silver prices will reach $48 - $49 by year's end, and hit "north of $60" by spring.
That's why he refers to the white metal as "gold on steroids."
Part of the answer to why silver has done so well recently is the launching of QE3 by the U.S. Federal Reserve. Silver rose 53% from December 2008 through March 2010 after QE1. It climbed 24% after QE2 in the period ending in June 2011. Now we have QE3.....
As Michael Cuggino, who manages about $17 billion at Pacific Heights Asset Management, told Bloomberg News, "In this accommodative monetary policy scenario, silver seems to be trading as an alternative currency."
But the real reason behind the rise in the price of silver goes deeper than just QE3 - or, as some in the market jokingly call it, QE Infinity.
Here are some of the other reasons the price of silver is headed to $50 by 2013.
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?
ETFDaily 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.
With the recent volatility and lows in the gold market, many investors also have been wary of silver prices.
Silver on Friday closed down 0.4% to $28.87 per ounce. For the week, prices dropped 5.1%.
Not the prettiest picture, but for the year silver has increased more than twice the price of gold thanks to growing confidence that the global economy will dodge another recession bullet.
David Jollie, an analyst at Mitsui & Co. Precious Metals Inc., recently said to BloombergNews, "A greater amount of confidence in the global economy generally means higher growth and that means more silver demand. If you look out beyond the end of the year, you can still see reasons to be bullish."
Why Silver Prices Will Rally
Increased Demand: The global head of metals analytics at Thomas Reuters GFMS, Philip Klapwijk, has forecast silver sales to increase as end-users expand inventories that thinned at the end of 2011.
A large portion of silver demand - 80% - comes from fabrication, which is expected to rise about 3% to 5% this year to roughly 900 million ounces.
Also helping is China's manufacturing expansion and an increased electronics industry demand.
Klapwijk also sees current monetary policy increasing investors' appetite for silver and triggering a subsequent price rise.
He expects "a continuation of very loose monetary policy," he wrote in a report earlier this year. "We also see rates likely being cut in some of the emerging-market economies such asChina, India and Brazil."
This means current silver market lulls are great buying opportunities since the long-term outlook remains bullish.
Klapwijk toldDow Jones Newswire, "We see a range for silver north of $40 and maybe getting to a low of $28" per troy ounce.