Silver’s riding high on a wave of central bank-led stimulus action, and hedge funds currently are the most bullish they’ve been in over seven months. What’s more, investors’ holdings are increasing toward record levels as expectation grows that silver might outdo gold.
U.S. Commodity Futures Trading Commission data reveals that wagers on rising prices have increased by over tenfold since June. This quarter, investors bought 717.2 metric tons (valued at $797 million)—that is the most in a single year.
Further, prices are set to keep going up over the next three quarters, and for the three months through June they will average $38 per ounce. That’s 9.9 percent more than present conditions.
After a third round of quantitative easing announced by the U.S. Fed, silver should beat gold. History is on its side; after the first round of QE from December 2008 through March 2010, silver rose by twice as much as gold, and after QE2 ending June 2011, it rose three times as much.
“The recent announcements on the part of central banks really sparked the rally,” said Peter Sorrentino, who helps manage $14.6 billion of assets at Huntington Asset Advisors in Cincinnati. “Silver has now become a two-way play, getting bids both on industrial demand as well as a monetary hedge.”
Silver has wide industrial use, and these applications account for around 53 percent of all silver demand.
In London, the metal rose by 24 percent to $34.635, beating gold’s 14 percent rise. After the U.S., China is the world’s second-biggest silver user, and their imports hit a one-year high back in August.
While silver hasn’t quite reached the record $49.79 set back in April 2011, this year’s average of $30.67 is the second highest ever.
Several firms stand to profit from the present scenario. Coeur d’Alene Mines Corp. (NYSE: CDE) receives almost 65 percent of its revenue from silver. The company’s net income is expected to rise 39 percent to a record $129.7 million this year, and shares accordingly rose 19 percent so far this year.
Pan American Silver Corp. (NASDAQ: PAAS) will also report an increased profit ($264.6 million) next year, up from $212.2 million. Although its shares fell 0.5 percent so far this year, several analysts predict a rise of 7.3 percent over the next year.