We described silver as the "forgotten metal" last August. At the time, gold was making all the record-busting headlines even though silver was returning comfortably the stronger price performance of the two. Interest in silver has grown substantially since then and, while both silver and gold appear to have topped out in the near term, silver remains likely to be one of the brightest investments of the next few years.
Silver has fallen 15 per cent since the start of the year while gold is down 6 per cent. But this pull-back follows silver's sparkling 88 per cent return in 2010 compared with gold's 29 per cent gain, suggesting more a pause for breath during a longer-term ascent than fundamental weakness.
In fact, the fundamentals for silver are stronger than ever. Like all precious metals, silver can be used as a hedge against inflation or currency devaluation, both of which are now a threat due to the increased money supply stemming from two bouts of quantitative easing (QE). This was considered necessary given that interest rates couldn't be lowered any further, which would have been the traditional economic stimulus. The second wave of QE last autumn failed to deliver the hoped for growth and there is speculation that debt-laden governments might now have to resort to a third wave. With inflation starting to re-emerge as a threat to European economies, any further expansion of the money supply will only strengthen the long-term case for holding silver and gold.
