The silver price continues to outperform the broader stock and commodity markets as investment demand for silver has risen substantially. To take advantage of this trend and provide investors with a new, liquid way to gain exposure to the silver price, Sprott Inc. recently filed a preliminary prospectus for the launch of the Sprott Physical Silver Trust, a closed-end fund that will provide investors with a new way to gain exposure to the price of silver and allow the purchase of “unencumbered, fully-allocated physical silver bullion,” according to the prospectus.

Sprott, the investment firm run by long-time precious metals bull Eric Sprott, launched the Physical Gold Trust (PHYS) earlier this year, which has been increasing in popularity among gold investors. PHYS allows investors to exchange their stake for bullion bars on a monthly basis, and investors have paid up to a 10% premium for that option.

Accordingly, Sprott plans to leverage the success of his gold fund with the Sprott Physical Silver Trust, which he plans to list on the Toronto Stock Exchange (TSX) and the New York Stock Exchange (NYSE). The Trust will also provide investors with an alternative to the iShares Silver Trust (SLV), the largest silver ETF - which has been the subject of speculation that the trust does not own all of the silver backing the fund’s holdings.

While Sprott is perhaps best known for his investments tied to gold, his firm also has substantial exposure to the silver price - through positions in many silver companies, including Silver Wheaton (SLW) and MAG Silver (MVG).

June 28, 2010

As the price of gold continues its ascent, its sister precious metal, silver, is having its strongest winning streak since 1980. Silver, the precious metal widely used for industrial purposes, has become increasingly hoarded as for investment purposes. As gold hovers near record highs amid renewed concern over the global economy, silver is quietly on its way to extend its longest run of quarterly gains in nearly three decades.

Silver has risen 9.5% since the end of March and is headed for its sixth quarterly increase. For investors, buying silver serves multiple purposes - as a store of value for those concerned about the economy as well as an industrial metal levered somewhat to global growth. Thus far in 2010, the silver price has outperformed nearly all industrial metals with an 11.5% return, which is only slightly below the 13.1% rise in the gold price.

According to Daniel Brebner, an analyst at Deutsche Bank AG, the silver price is likely to increase from its current price of $18.38 by as much as 15% to $22 an ounce before December of this year. Similar estimates were made in a Bloomberg survey of 27 analysts and traders, who predicted the price of silver will reach as high as $21 by year’s end. Jeffery M. Christian, the managing director of CPM Group stated, “You buy gold when you think the world is going to hell in a hand basket. You buy copper when the economy is booming. In between those two, if you’re a bit confused, you buy silver.” Silver has risen nearly 70% since Christian recommend buying it in a Bloomberg interview in 2008.

Half of silver demand is for industrial applications which include but are not limited to solar panels, batteries, alloys, and electrical conductors. Approximately 435.1 million ounces of silver are used for industrial purposes, compared with 12 million for gold, 3.85 for platinum, and 6.19 for palladium. Barclays estimates that industrial demand for silver will gain 14% in 2010.

One ounce of gold buys about 66 ounces of silver. This ratio is up materially from its five-year average of 59. Deutsche Bank’s Brebner commented, “The store-of-value component of silver has been a positive,” Brebner also noted that he expects silver to climb as high as $25 in 2011.

May 31, 2010

Silver fell 2.2% in the month of May, significantly underperforming the 3.1% rise in the gold price. The silver price, due to its many industrial applications, has historically underperformed gold when the economy is weak and broader stock and commodity markets are under pressure. This was the case in May, as investors fled risky assets and opted for the safety of cash and gold bullion - and the liquidity of U.S. Treasuries.

Despite the weakness in May, the silver price remains higher by 8.8% thus far in 2010, driven by investment inflows into silver bullion exchange-traded funds. The iShares Silver Trust (SLV), which acts as a proxy for the silver price, has been garnering increasing inflows. Silver has appreciated as investors have sought out hard assets against a backdrop of rampant currency debasement and depreciation. London-based metals consultancy firm GFMS noted in its latest silver report that investment demand for silver rose by 90% last year to 215.6 million ounces.

Silver is 11.2% below its March 2008 high of $20.92 per ounce, which occurred as Bear Stearns was collapsing. If the silver price is to exceed that level, it will be investment demand - and likely new all-time highs in the gold price - that will be the key driver.

May 16, 2010

The gold price-silver price ratio has had dramatic swings over the last thousand years. During the age when the Roman Empire dominated across the globe, the ratio of gold to silver was set at 12 to 1. In 1991, when the silver price collapsed, the ratio hit a high of 100 to 1. The mean of the last 10 years is 61.9 - roughly in-line with the current reading of 63.7.

While investment demand is still a key driver of silver prices, the significant amount of industrial uses make the moves in its price more sensitive to global economic activity. When stocks and cyclical commodities are rising, the gold-silver ratio tends to fall as silver outperforms its sister precious metal. During times of stress, the gold price will display relative strength - evidenced by the decline in the gold-silver ratio fell to 47.5 in March 2008 on the eve of the collapse of Bear Stearns.

The current reading of 63.7 falls not only near the 10-year mean, but also very close to the 52-week mean of 64.5. The 52-week high in the ratio of the gold price to the silver price occurred in July of 2009 at 72 while the low print transpired in September of 2009 as Lehman Brothers went bankrupt.

Whether the gold-silver ratio breaks out to the upside or the downside will likely depend on one’s outlook for economic growth and for the direction of risky asset prices. For those bearishly inclined, betting on an ascending gold-silver ratio would appear to be the proper course of action. For the more optimistic investor, bullish on the economy, stocks, and commodities, preferring gold over silver - a lower gold-silver ratio - is likely to be the best course of action.

May 11, 2010

The silver price rallied over 4% on May 11 to as high as $19.41 per ounce, its highest level since March 19, 2008 - amid the Bear Stearns crisis. COMEX silver futures - per the July contract - finished higher by $0.69, or 3.7%, at $19.24. With the silver price rally, gold’s sister precious metal has now climbed 14.8% year-to-date and 42.2% in the past 52 weeks.

One of the main catalysts behind the strength in silver has been its dual role as both a precious metal and industrial metal. Precious metals have been sof the top performing asset classes year-to-date, as central banks around the world continue to try to stave off deflation by printing money. The European Central Bank’s (ECB) recent decision to begin a quantitative easing program as part of the $1 trillion European rescue package is the latest such example of currency debasement across the globe.

The numerous industrial uses of silver have boosted the metal amid the global economic recovery. Despite headwinds emanating from the ongoing sovereign debt concerns in Europe, the threat of tighter monetary policy in China, and the recent 1,000 point intra-day sell-off in the Dow Jones Industrial Average (DJIA), silver has performed particularly well in 2010.

April 23, 2010

At $18.01 per ounce, the price of silver has advanced 3.0% in April and 6.9% year-to-date. Silver has thus far in 2010 outperformed the gold price - which has risen 4.2% this year. However, while many dollar-denominated asset classes have climbed to new year-to-date highs in recent weeks, the silver price remains below its 2010 high of $18.84 made on January 11.

This divergence was discussed in a research report from CIBC World Markets, which noted that over the past 20 years the silver price has generally increased from lows at the beginning of the year to reach interim highs in May before consolidating over the summer and subsequently reaching new highs late in the year.

Because of the fact that the price of silver has yet to eclipse its January 2010 high, the report states that it could be argued that the market “may have lost the typical strengthening” that accompanies the usual silver price advance. CIBC argues against this characterization, stating that the advance in January was just a continuation of the silver price rally from 2009, and that the “typical seasonal pattern” is alive and well. The silver price can therefore be expected to make a new year-to-date high in May, followed by a correction during the summer months and then the “traditional fall bull run.”

The report went on to discuss several silver stocks for which it has 12-18 month price targets that are 30% or more above current shares prices - highlighting Coeur d’Alene Mines (CDE), Fortuna Silver Mines (FVI.TSX), and Minefinders (MFN).

April 19, 2010

The silver price has continued to outpace the gold price in April, despite the large sell-off in silver and gold last Friday amid broad-based liquidation stemming from the Goldman Sachs fraud allegations. Month-to-date the price of silver has risen 4.6%, versus a 3.5% gain for the yellow metal, while both precious metals have posted considerable gains in 2010.

During the first quarter of the year, the price of silver advanced 3.8%, or $0.64, to $17.49 per ounce, outpacing the gold price’s 1.6% rise to $1,113 per ounce. While the reflation trade has buoyed both silver and gold over the past year, silver’s rise has also been the result of a substantial pickup in industrial demand stemming from the ongoing economic recovery across the globe.

Silver also received an endorsement recently from Eric Sprott, the founder of Sprott Asset Management. In an interview on CNBC, Sprott stated that “We love silver…I think silver will act better than gold. There’s not as much silver inventory in the world as gold inventory.”

As the price of silver has climbed, speculative interest in the precious metal has increased, with the net-long position in silver futures rising in recent weeks. According to the latest Commitment of Traders report from the U.S. Commodity Futures Trading Commission’s (CFTC), speculative long positions exceeded short positions by 39,605 contracts on the COMEX division of the New York Mercantile Exchange for the week ended April 13. Many silver investors follow the weekly CFTC data to gauge the speculative interest in the precious metals sector and attempt to identify upcoming movements in the silver price.

April 15, 2010

The silver price has continued its outperformance of the gold price in April, surging 5.5% versus a 4.1% gain for the yellow metal. In the first quarter of 2010 the price of silver rallied 3.8%, or $0.64, to $17.49 per ounce, exceeding the 1.6% rise in the price of gold to $1,113 per ounce. While both precious metals have benefited from the reflation trade over the past year, silver's rise has also been the result of a significant pickup in industrial demand related to the global economic recovery.

The history of silver as money dates back to at least 2000 BCE in Mesopotamia, and silver has been used as money in more civilizations and for longer periods of time than gold. Nobel Laureate Milton Friedman was famously quoted as saying that "The major monetary metal in history is silver, not gold."

The ratio of gold to silver is a closely followed metric by precious metals investors, and moves higher during difficult economic times due to a reduction in industrial demand for silver. As the global economy recovers or rises, industrial demand for silver increases and the silver price begins to advance. The gold / silver ratio has contracted from 84.4 in October 2008 - its highest level in ten years - to its current level of 62.8.

While this ratio is near its ten-year historic average, one legendary investor was recently quoted as preferring to invest in silver over gold at the present time. Jim Rogers, who founded the Quantum Fund with George Soros in the early 1970s, stated that "I like to buy what's cheapest. Silver is cheaper than gold, on a historical basis."