5 Key Reasons Why Silver Prices Will Continue To Perform In 2013 (SLV, HL, AGQ, PSLV, ZSL)
Tony Daltorio: If asked to name the top performing commodity of the past decade, not many would answer silver because of its notorious volatility.
Yet, according to Lloyds TSB, silver prices have delivered the best gains since 2002.
Lloyds data shows that the shiny metal soared 572% over the past decade, beating gold’s rise of 428%, which was second best among commodities.
Lloyds said silver beat gold because “[I]n addition to being perceived as a safe haven investment, high demand for industrial uses has also contributed to the strong rise in the price of silver.”
The key question for precious metals investors is whether silver will continue to be a good performer in 2013.
Money Morning’s Global Resource Specialist Peter Krauth thinks so. He forecasts that silver prices will hit “north of $60 per ounce” by spring.
If his forecast is on target, it bodes well for both holders of silver bullion and coins as well as for holders of ETFs such as the iShares Silver Trust (NYSEARCA:SLV).
Here are five key factors that show why Krauth’s forecast for silver prices in 2013 could be right on the money.
Silver Prices in 2013: New Industrial Uses
One positive for silver has to be the aforementioned industrial uses.
At last month’s Denver Gold Forum, the CEO of silver producer Hecla Mining (NYSE:HL) Phil Baker made an interesting observation.
He said there was a parallel to what happened to silver usage at the turn of the 20th century to what is happening today. At that time, photography became a major driver of demand of the silver market.
This time though Baker believes it will not be one industry solely driving demand, but a myriad of new users of silver looking to take advantage of the metal’s unique properties (such as electrical conductivity) in the electronics and medical fields among others.
Silver’s expanding usage in a large number of industries may help to offset the general weakness in the global economy.
Investment Demand for Silver
Another factor favoring silver prices is the continued investment demand for the precious metal from the average person around the world, due in large part to central bank policies.
Through Sept. 15, exchange-traded funds’ holdings of silver totaled more than 608 million ounces and were valued at $20.5 billion.
“Investors and analysts are bullish on expectations that additional central banks will do more to attempt to stimulate economies in order to increase consumption and spur employment, leading to even greater investor attention on the 4,000 year allure of silver as a safe haven and a store of value,” said Michael DiRienzo, executive director of the Silver Institute.
Let’s not forget about the declining inventories of silver either. According to COMEX, its stockpiles of the metal hit a four-month low in early August. That shows accumulation of silver by investors.
From the mining standpoint, there’s a looming risk that could drive silver prices higher in 2013.
That’s the growing threat of resource nationalism, the number one global strategic risk for mining companies, according to Ernst & Young.
The risk advisory firm Maplecroft said in its Political Risk Atlas for 2012 that “where [resource nationalism] does take place, businesses (mining companies) could lose control or possession of assets. . .or face higher taxes.”
Such scenarios would put a crimp into production of resources like silver, and drive prices higher.
One example of resource nationalism is one of the major silver producers, historically and presently, Peru. In fact, that country still has the largest in-ground silver reserves, according to the U.S. Geological Survey.
The country’s president Ollanta Humala came into office as if he were going down the road of nationalism, like Hugo Chavez of Venezuela.
He has moderated his views since the initial fear of outright nationalization at mines, but there are still many questions remaining about the future course of mining in the country. Any sort of government action in Peru affecting silver production there would surely raise silver prices globally.
An additional factor affecting silver next year is a historic one.
The gold/silver ratio has throughout much of history been at around 16. That is, the price of gold has been 16 times higher than the price of silver.
Today this ratio is about 54. This means, based on the long-term historical ratio, silver “should” be over $100 an ounce!
Of course, most of the history of this ratio occurred when silver was considered money and not demonetized as it is today.
But the key here for investors to keep in mind is that during periods of monetary crisis, such as the 1970s, the price of silver tends to increase much more than the price of gold.
Jim Rogers and Silver Prices
Another plus is that some “smart” money is touting silver.
Legendary commodities investor Jim Rogers recently pointed to silver as the metal of choice over gold in the current economic climate.
He recently told Tom Lydon of ETFTrends “Governments print money – that’s all they know. So own real assets like silver. . .and you’ll survive.”
Rogers added that he owns all the precious metals but said if he had to buy one today, it would be silver. He pointed to the fact that silver is the only major commodity which has not reached a new all-time high in this commodity bull market and is still cheaper than it was 32 years ago – a good a reason as any for investors to expect more gains for silver in 2013.
Related: Related: iShares Silver Trust (NYSEARCA:SLV), ProShares Ultra Silver (NYSEARCA:AGQ), Sprott Physical Silver Trust ETF (NYSEARCA:PSLV), ProShares UltraShort Silver (NYSEARCA:ZSL).
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