Commodity Online
DUBAI: Is silver a better investment than gold? Even as stock markets plunged and commodities became the darling of the investor community in the last one year, gold has been the most talked about commodity for investment.

But gold’s white brother silver has also been glittering giving great returns to the traders and investors.

Analysts say silver has immensely gained in the second quarter from a recovery in industrial commodities. But at the same time, they caution that if the investment market momentum dips, silver prices could plunge.

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Mark Robinson, a Dubai-based bullion analyst says silver has great potential as an investing commodity. “But the main problem with silver is that silver market is not as deep and liquid as gold market globally,” he told Commodity Online. “But long term, silver has great potential,” he added.

Silver rose to good levels in the first quarter of this year as investors bought the commodity as an alternative to gold, to hedge against dollar weakness and volatility in other markets.

The rise in silver prices has also been largely thanks to a fresh wave of investment demand, as funds and other investors buy into silver futures and physically backed exchange-traded funds (ETFs).

According to an analysis from GFMS, investment accounted for only 50 tonnes of silver demand in 2008. In the first quarter of 2009, buying by the biggest silver exchange-traded fund, the iShares Silver Trust , alone hit more than 1,500 tonnes.

That has continued, with London's ETF Securities' Physical Silver fund and Zurich Cantonal Bank's Physical Silver product, the leading European silver ETFs, adding another 99 tonnes to their holdings in May.

The growth in investment demand for silver is such that it could account for between one quarter and one fifth of total consumption in 2009.

As well as the sharp climb in silver ETF holdings, net long positions -- or commitments to buy -- in silver on the Comex futures exchange in New York rose last month to the highest since August 2008, suggesting keen speculative interest.

In addition to its appeal as a proxy for gold, silver is also taking a fresh leg higher from renewed optimism over the outlook for the global economy, which is helping the outlook for industrial metals.

Meanwhile, silver supply is expected to decline modestly this year, with mine output, scrap and government sales all softening.

With much of the fresh investment since the start of 2009 having flowed into ETFs, from where it can quickly be re-sold on to the market, and futures, some say prices are vulnerable to a sharp correction if funds decide to off-load their holdings.

But currently, silver is shrugging off underlying weakness in demand as investors bank on further gains in the metal on the back of rising gold prices.