In These Markets, Silver Wins by Default

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"Rally is 'entirely investor led.'"

Speculative investing has pushed silver prices to heights unseen in decades, a sign of the fear pervading markets as investors seek out anything that will preserve value amid economic shocks.

The fundamentals of the silver market certainly don't support a spike that on Monday surpassed US$30 an ounce, the highest price since 1980 and an increase of more than 75% this year alone, analysts say.

Rather, silver has found itself on a shrinking list of safe havens, with rising appeal against the U.S. dollar and treasuries, volatile stock markets and fears of a gold bubble.

ETFs in particular have been integral to silver's rise, taking the equivalent of half a year's worth of production off the market in the past few years.

"It's a momentum, hedge-fund, ETF-driven speculation bid based on the decline of the dollar and some putative advent of some hyperinflationary scenarios," said Jon Nadler, senior analyst at Kitco Metals Inc.

But silver's upward slope may prove slippery, he added. "My fear is that the adjustment will be equally brutal and possibly very bloody."

In fact, silver fabrication demand was at a 17-year low last year, while jewelry demand hit an 11-year low.

The effect of investment demand, on the other hand, is a pretty good indication that the silver market has been thrown out of whack, Mr. Gardiner said.

"If there was really such a big demand for silver, you take that much off the market, you would expect silver to go into backwardation," he said, referring to a market condition whereby futures contracts with more distant delivery dates are priced higher.

"It's entirely investor-led," he said.

Silver enthusiasts, however, point to the gold-to-silver price ratio as an indication that the metal should be on a roll.

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