Time for Silver to Shine?

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". . .silver is at the cusp of a major secular rally that will outpace gold prices. . ."

Universally regarded as a "poor man's gold," silver is at the cusp of a major secular rally that will outpace gold prices as the next leg of the bull market takes hold in 2010–2011.

Adjusted for inflation since 1980, silver prices should be trading at roughly $128 an ounce. But massive manipulation from four major short-sellers, including J.P. Morgan, has placed enormous pressure on silver over the last several months even as investment demand soars—mainly from booming coin sales and ETFs.

With global silver production projected to barely grow in 2010, the odds favor a major recovery off the March 2008 high of $20.78 an ounce. That price is still way below the all-time high of $49.45 per ounce in 1980 as the Hunt brothers tried to corner the market.

Gold, on the other hand, hit a nominal all-time high in early December at $1,217 an ounce.

In the last decade, spot silver prices have rallied a cumulative 219% compared to 295% for gold. But over the last 12 months – marked by a wicked recovery in most risk-based assets – silver has gained 37% versus 25% for gold.

A period of outperformance by silver might have indeed begun and if demand continues to grow, courtesy of exchange-traded funds and silver coins, prices can easily surpass their March 2008 highs this year.

The supply-side story for silver remains bullish. According to CPM, a consultancy firm, 12 billion ounces of silver existed back in 1900; that figure has plunged to only 680.9 million ounces in 2008, according to the Silver Institute (latest figures available). So over the last 110 years we've seen a massive 94% drop in aboveground supply. That's a staggering figure.

In 2008, global silver mine production grew by 2.5%, representing the 6th year of consecutive output growth and 77% of total supply for 2008. Peru was the largest silver-producing nation in 2008 followed by Mexico, China, Australia and Chile.

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