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Silver Could Gain 29% Next Year

Written By Brian Hicks

Posted December 21, 2012

Could silver be the new gold? According to Singapore’s Silver Bullion Pte, a major supplier of coins and bars to retail investors, sales in silver have gone up more than threefold since October as part of a global trend.

Bloomberg reports:

“Our clients are worried that a major currency crisis or mass bankruptcies would occur,” said Gregor Gregersen, the 36- year-old founder of Silver Bullion, whose sales now average about S$6 million ($4.9 million) a month. “It all has to do with falling confidence in the heavily indebted Western governments and financial institutions.”

Since the end of 2008, silver has certainly gone up in value; it has more than tripled, in fact. Stimulus action pledges by central banks across the world has already caused people to view gold favorably, but it also means investors are thinking about increased industrial demand for silver. After all, almost 53 percent of silver is used in industrial applications from television manufacturing to batteries.

Over this year, silver rose 12 percent to reach $31.22. That’s actually a much better gain than gold, which only rose 6.8 percent, but behind platinum’s 14 percent gains.

But there’s a possibility that a second recession—should the U.S. go over the fiscal cliff early in 2013—would push silver back. After all, it dropped 23 percent back in 2008.

Silver is much more volatile than gold—the metal’s 100-day volatility trend is twice as high as gold’s. For example, back in April of 2011, silver for immediate delivery went up as high as $49.79, but then dropped 35 percent within a month.

But according to Bloomberg data, investment worldwide made through silver-backed exchange-traded products reached a record high of 18,854 tons in November, and holdings now are estimated to be around $19.2 billion. Prices could rise by 29 percent next year, meaning we could see $40.25/ounce.

Comex silver futures are estimated at around $22.6 billion, and investors currently own 18,760.34 tons through ETPs, but they may well add another 300 tons to that over 2013, suggests Morgan Stanley.

And don’t forget the U.S. Fed’s quantitative easing actions; silver has risen with each QE instance: 53 percent for the first round, and 24 percent for the second.