Three Reasons Silver Is Likely to Shine

finance.yahoo.com

Kevin Grewal, On Friday July 30, 2010

Although gold continues to grab most of the attention in the precious metal world, its less glamorous sister, silver, may be more appealing, and for good reason.

First off, silver has many more uses than gold. It's used for numerous industrial purposes and nearly 55% of total silver fabrication is used for industrial purposes. Silver is commonly used in the electronics space and can be found in plasma display panels and printed circuit boards, as well as in the lining of refrigerators, for food storage containers, and for water purification. Additionally, the metal can be used as an antimicrobial to fight bacteria and as an antiseptic to treat fungal infections. Silver's industrial uses even span to the solar energy industry. As economies around the world continue to expand, the industrial demand for silver will likely follow. See also, "The Misleading Nature of Beating Estimates in the Mining Sector."

Another force that's likely to support silver is that valuations appear to be strong. In a nutshell, silver is cheap and depressed on a historical basis, when compared to its sister metal, gold. Gold is trading much higher than its long-term ratio of 16 times the price of silver, indicating that there's plenty of room for silver prices to run. Additionally, silver is nearly 70% below its all-time high witnessed in 1980 and well below its near-term high of $21 per ounce seen in 2008.

Lastly, diminishing supply is likely to bolster the metal. According to a study conducted by the United States Geological Survey, silver is nearly twice as rare as gold in the long term because it's not recycled at the same rates as gold and at current consumption rates all of the silver that's in the Earth's crust will diminish away in the next 25 years.