Is silver the new gold in 2013?

19 February 2013

Investors could do well to invest in silver in 2013, according to ETF Securities.

"Silver is a hybrid metal and is likely to receive strong support in 2013, as industrial demand rebounds at the same time as we are seeing strong investor appetite for precious metals to hedge economic uncertainty," explains Martin Arnold, research director at ETF Securities.

The precious metal's spot price could rise from its current $31 per troy ounce to nearer $40 through the course of the year, according to a Bloomberg survey of 49 market insiders. And some commentators believe it could even reach $50 per troy ounce.

Growing investor sentiment is down to several factors. First, more than half of silver's demand is driven by its industrial use, as a key component in the manufacture of electronics and solar technology, for example. This source of demand is expected to strengthen during the course of 2013, thanks in part to expectation that the re-election of the Obama administration will keep monetary policy loose in the US – the second cause for optimism.

The third reason is more to do with silver's credentials as a store of intrinsic value. With major economies such as the UK, eurozone, Japan and the US pumping money into their financial systems – in the form of quantitative easing in Britain and the expansion of the bond-buying programme in the US – their currencies are being devalued, and investors increasingly turn to commodities, such as gold and silver, to offset this and to hedge political risks.

However, Patrick Connolly, a certified financial planner at AWD Chase de Vere, warns investors not to be dazzled by the figures. "We think investors should hold nothing in silver. Even though some commentators believe the price will rise, we would argue that silver is a poor man's gold. While there may be some fundamental reasons to justify investing in gold, the same cannot be said for silver, where there is a much smaller market, meaning greater volatility and less liquidity."

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