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* Silver above $30 for first time since 1980
* Gold/silver ratio falls below 48, silver seen overvalued
* $100 silver investment on Jan. 1 would be worth $180 now
By Frank Tang
NEW YORK, Dec 6 As silver climbed above $30 an
ounce on Monday for the first time since 1980, traders and
analysts were cautiously bullish about the metal's ability to
keep outperforming gold and stay at 30-year highs.
Momentum traders and retail investors have been piling into
the white metal this year, which has risen with gold as a safe
haven amid a eurozone debt crisis and the prospect of further
monetary easing by the Federal Reserve and central banks.
Silver is also becoming a favorite play for investors
betting on a swift economic recovery and greater demand for
industrial commodities. Traditionally, about half of the
world's silver production is consumed by manufacturers and
other industrial users.
While gold has grabbed investors' attention this year with
its rally to record highs at almost $1,430 an ounce, silver has
quietly outpaced those gains on a percentage basis. A $100
investment in silver on Jan. 1 would now be worth about $180
versus $130 for a similar investment in gold.
Graphic silver vs gold: link.reuters.com/fyz68q
Graphic gold-silver ratio: link.reuters.com/vab78q
The rally in silver -- up nearly 80 percent this year
versus gold's 30 percent gain -- has narrowed the
gold-to-silver ratio to less than 48, its lowest level since
the first quarter of 2007 and a point at which more analysts
were beginning to call silver overvalued.
At over $30 an ounce, silver is at its highest level since
1980 when a physical squeeze briefly sent it above $50 an ounce
in the Hunt Brothers' infamous attempt to corner the market.
The Hunts were later convicted of conspiring to manipulate
Is the traditionally volatile and speculative silver
sustainable at 30-year highs?
Frank McGhee, head precious metals trader at Chicago-based
Integrated Brokerage Services LLC, said silver prices are going
to stay at high levels and prices could rise as high as $35 an
"The market is extremely well bid. The funds are obviously
adding the support underneath the market, but the continued
Chinese expansion and virtually what would have been considered
run-away inflation in the U.S., if those (China) numbers were
occurring here, are continuing to drive consumption.
"You've got dwindling above-ground stocks, you've got
tremendous interest in the market, you've got the Fed now
talking about QE3 ... all of that has silver still attempting
to get back to the equivalent level as it should have been with
gold at $1,400 an ounce," he said.
Physical silver held by the world's largest silver-backed
exchange-traded fund, iShares Silver Trust (SLV), held near an
all-time high of 10,893.68 tonnes set on Nov. 23.
The U.S. Mint's American Eagle silver coins sales rose to a
record above 4 million ounces in November, as economic
uncertainty prompted individual investors to bet on silver and
gold as safe havens. [ID:nN30490406]
"We're looking at silver moving into a deficit position
next year, mainly because we continue to see the global
recovery continuing and that means the industrial part for
silver will grow," said Bart Melek, global commodity strategist
at BMO Nesbitt Burns in Toronto.
In November, respected precious metals research and
consulting firm GFMS said silver is likely to rise above $30 an
ounce in 2011, lifted by strong investment buying and
recovering fabrication demand.
For 2010, silver fabrication demand is expected to rise 10
percent as a recovery in industrial uses, record coin demand
and slight growth in jewelry off-take offset losses in
photography and silverware fabrication. [ID:nWALHME6SC]
"There're a few factors -- strong industrial demand, and
mine production is not exactly setting the world on fire. Most
silver is mined as a by-product of copper/zinc/lead mine
production. Copper production has been disappointing, so
perhaps that has affected silver output too," said David
Thurtell, an analyst at Citigroup in London.
Other analysts said there are few fundamental reasons to
support silver's sharp rally, and the speculative commodity
could sell off quickly similar to its previous rallies.
"I am not sure what has moved this market to this 30-year
high. To the best of my recollection, the use of silver has
diminished over the years for different products such as
photography and in the X-ray field," said George Nickas, a
broker of FC Stone in New York.
"I don't know if it's (related to) the inquiry by the CFTC
on the short positions of the two major banks that it has been
studying over the last two years," he said.
Late in October, JPMorgan Chase & Co (JPM.N) and HSBC
Holdings Plc HSBC.L were hit by two complaints from traders
accusing the banks of conspiring to drive down silver prices.
They claimed that the firms reaped up to hundreds of millions
of dollars of illegal profits. [ID:nN27259071]
Some precious metals advocacy groups claimed that
governments, central banks and commercial banks have colluded
to keep the price of silver weak. However, conventional
investors view that as a conspiracy theory with very little
evidence to back up the claim.
"These metals are getting overbought, but they seem to be
in their own upside world. The fact that Bernanke said the
economy may need more stimulus, and with the European debt
crisis and concern about European currencies, people are buying
precious metals as an alternative to currencies," said Donald
Selkin, chief market strategist of National Securities Corp in
"Rightly or wrongly, there is very good strength there. A
lot of hedge funds have big positions in these metals, and
their price has become a function of investment demand rather
than demand for their usage. They've become investment vehicles
with the ETFs and other investment vehicles. But, to me, it
seems like a very crowded trade," he said.
(Additional reporting by Jan Harvey in London, Christopher
Kelly and Carole Vaporean in New York; editing by Jim