Precious metals had a tremendous run in the first quarter, with gold breaking the $1,557 per ounce barrier, and silver gaining 50% and flirting with $50 per ounce for a few weeks after Easter. Silver last hovered at this level in January 1980, when the spot silver price hit $50.35 in trading.
But assets can rarely sustain such a meteoric rise and it was not to last.
Investors had turned to precious metals as a hedge against inflation, and as a store of value in the current geopolitical turmoil. As if to illustrate the point, silver's dramatic 27% tumble in May came immediately after Osama Bin Laden's death, possibly as a knee-jerk reaction to a perception that the terror threat is diminishing.
The sell-off was also part of a rout across the broader commodities complex, which had been looking frothy for some time.
Once the Bin Laden story was digested, both metals staged a rapid recovery, gold once again breaking through $1,500 and silver up at $37 just one week later.
The driver of recovery is the renewed focus on eurozone debt problems. If problems in Greece worsen, precious metals could reclaim their safe haven allure - only this time it would be at the expense of the euro, rather than the dollar, whose status as the world's favourite reserve currency has been hammered by the vast quantitative easing being pumped into US markets.
It is an odd turnaround as the euro has managed to shrug off a raft of negative news such as Portugal's bailout, no confidence votes and negative sentiment in the bond markets. S&P's decision to downgrade Greece's credit rating again, to B, just one notch above Pakistan's, was the turning point.
Senior eurozone policymakers are rumoured to be saying that Athens will probably need a second bail-out package soon to avert a disorderly overhaul of its debt obligations.
Safe haven appeal
"Although gold gets all the attention when we talk about the rise in precious metals, it has been a bumper year for silver," says David Jones, chief market strategist at IG Group.
"Silver benefits in a few ways depending on the economic climate. It is used as a hedge against inflation - physical assets are always attractive if investors view rising prices as an ongoing risk. Uncertainty also tends to push up silver prices, as it is another so-called 'safe haven'."
The ascent in silver prices in the first quarter accelerated so strongly that the metal's price chart became parabolic, a dead giveaway that an abrupt end to the bull run was in sight.
Now, post-tumble, speculators are back in force, but it is hard to avoid the conclusion that the 1980s record level of $50 will again prove the critical resistance level.
With gold closing above $1,500 per ounce, $1,600 is its next round-number target. Such a target is entirely feasible, according to analysts at precious metal specialists Sector Investments and Canaccord Genuity, the global capital markets arm of Canaccord Financial.
There are other factors at work with gold, most specifically huge demand for jewellery from the rising middle-class consumers across Asia.
Silver is also used for jewellery, but less extensively and its demand is more erratic. In fact, so active are the silver speculators that at the beginning of May, trading volume in the US-quoted iShares Silver (SLV) exchange traded fund that tracks the metal, overtook volume in the SPDR S&P 500 ETF (SPY), the grandfather of all ETFs which tracks the eponymous US index.
Daily volume in the silver ETF has rocketed 400% from its average in the first quarter, as traders and investors chased the price of the metal up.
In the UK, three popular ETFs track the price of silver. They are iShares Physical Silver (SSLN), ETFS Physical Siver (PHAG) and db-x Physical Silver (XSIH), which is hedged back into sterling.
At first sight, ETFs might seem a logical way to play these markets, but derivative-based commodity trackers generally underperform because they are competing against active investors who can do simple things in derivatives markets to gain a consistent edge, such as buying futures ahead of the big programmed rolls which drive up the price and selling contracts before the trackers do, pushing down the price investors get paid for expiring futures.
Spread betting is a clean way to directly access changing price movements.
You can take a longer-term position on the metal by using one of the longer-term spreadbet contracts. IG Index's current price for July Silver is 3663/3666, while the furthest quote for gold is June, trading at 1506.4/1507.
This article was taken from the June 2011 issue of Money Observer.