Silver may continue to outshine gold’s performance in 2010

Silver has outshone gold’s performance this year and will continue to do so in 2010 as the white metal responds to the prospect of a surge in industrial demand, Angel Commodities Broking's Analyst, Amar Singh, said.

Silver ready (.999 fineness) prices are hovering around Rs27,850 per kg in the Mumbai bullion market. Demand for silver in the coming year is expected to rebound to normal levels in 2010 as the emergence of key new markets for silver would help to boost prices further.

Also, re-stocking of inventories for more of silver’s traditional uses will be a powerful demand driver in the near-term, Singh said.

Silver prices are mainly driven by the fact that traditional industrial end-users of silver, such as the global electronics industry have in recent weeks begun to replenish severely depleted inventories, he said.

During the financial crisis, silver inventories had run down sharply and it may take approximately six-months to fully rebuild the inventories to normal levels, Singh said.

An important factor to understand in the case of silver is that demand from the industrial sector tends to be quite inelastic. This means that buyers have few options and have to pay at prevailing prices.

Key driver for 2010 silver will be demand for silver-zinc batteries in ‘smart automobiles’ and an array of portable electronic devices. The widespread adoption of silver-zinc batteries is going to be one of the major drivers behind the rise in prices as it may absorb a high quantity of silver, Singh said.

The ever-expanding industrial market for silver includes LCD/plasma television screens, solar panels, and water purification, medical and superconductivity applications.

Silver is also finding a critical new use in biocides where the white metal is used in chemical agents to kill dangerous bacteria, he said. Silver’s importance has grown as a high-tech industrial metal and it has grown year-on-year since 2001 to the start of the financial crisis. This long-term trend in silver prices is set against a backdrop of a multi-year rally.

"We expect silver to continue to trade higher in the coming year as the demand-supply dynamics are beginning to reflect a return to a normal economy. We feel that silver is a unique metal in terms of performance as it wins whether the economy is in good or bad shape," Singh said.

Demand for the metal rises in both situations because if the economy improves then the industrial demand increases and if there is a downturn then investors buy it as a hedge against the downturn in the economy.

"In the coming year, we expect silver to witness a bullish phase as new avenues of demand open up amid the existing traditional applications of the metal. We also expect investment demand along with industrial demand to drive silver prices higher in the coming year," Singh said.