Precious metal is seen as an investor haven, the industrial metal falls on economic weakness

VANCOUVER -- MINING REPORTER

Nothing demonstrates the mood swings in today's markets better than the price of silver.

With Europe's debt crisis fears on the rise and amid growing concerns over a potential slowdown in China, silver has been pushed and pulled as gold worked its way to a record high and base metals such as copper stumbled badly.

Call it silver's split personality: It's both a precious metal investors turn to for safety and an industrial metal that gets dragged down on signs of economic weakness.

For investors, that makes silver tough to get a handle on. One week it's flirting with the high price of gold, while the next it's lured away by copper, zinc and lead.

"It can flip pretty quickly," said BMO Nesbitt Burns analyst Andrew Kaip. "It's very emotion-driven trading."

Take for instance silver's reaction to gold hitting a record close of $1,243.10 (U.S.) an ounce on May 12. Silver was up that day as well, while copper fell.

Gold held steady for a few days after that, while silver and copper both dived.

Silver and copper were hand-in-hand again on Wednesday on positive manufacturing news out of China, while the price of gold fell.

Silver's capricious behaviour is not unlike the general markets, which have seen wild swings in the past several weeks and left investors scratching their heads about which direction the markets will head next.

While silver has been volatile, the price is expected to continue rising due to flat supply, rising industrial demand in China and a North American recovery, as well as continued strong investment demand, according to a report released Thursday by London-based metals firm GFMS Ltd.

The report shows world investment demand for silver nearly doubled in 2009 to about 216 million ounces, compared with the year before. That's a value of about $3.2-billion on an average price of $14.67 per ounce in 2009.

Of those investments, about 137 million ounces were from silver exchange-traded funds, a 184-per-cent year-over-year increase.

Demand for silver coins grew 21 per cent last year to 79 million ounces, due to strong investment demand in the United States and Western Europe.

"Silver's status as a precious metal was unequivocally reaffirmed last year by investors who purchased it not only as a speculative commodity play on economic recovery but also as a safe haven asset," the report says.

"The white metal is currently riding high again as a sovereign debt crisis afflicts Europe and threatens to destabilize the still fragile world economy."

While more investors stock up on silver as an investment, especially when the markets have the jitters, analysts say the metal will continue to take more hits than gold.

"You have to expect silver to suffer along with equity markets," said Bart Melek, global commodity strategist with BMO Nesbitt Burns.

Total world silver demand was about 889 million ounces last year, of which 352 million came from industrial uses, or about 40 per cent. About 18 per cent, or 157 million ounces, was demand for silver in jewellery.

Last year marked the highest overall demand for silver since 2006, when it was 907 million ounces, 47 per cent of which was from industrial demand.

One area where silver demand is expected to fall permanently is photography, due to the rise of digital cameras. Last year, photographic demand for silver fell about 20 per cent to 83 million ounces, and is about half of where it stood in 2005, the report shows.