Silver expected to outshine gold

More gains forecast for the precious metal this year as fundamentals are strong but traders says thin volume poses risks to investors

PUBLISHED : Friday, 11 January, 2013, 12:00am
UPDATED : Friday, 11 January, 2013, 3:56am

Silver is expected to appreciate more than gold this year but traders warn investors may risk getting burned because of the high volatility in the thinly traded metal.

"Silver is now trading at a much lower level than its normal difference from gold. As such, we can predict silver will rise further this year," Chinese Gold & Silver Exchange Society president Haywood Cheung Tak-hay told the South China Morning Post.

Cheung said both gold and silver were considered safe havens for investors in an uncertain economy and skittish markets, adding that the continuing euro-zone debt crisis had led investors to pay more attention to these two precious metals.

According to British fund house Schroders, silver has beaten gold in the past 10 years with a total return of 503 per cent, against gold's 461 per cent.

Last year, silver rose 8.9 per cent to US$30.85 an ounce, compared with a 6.9 per cent gain in gold, which is now hovering at US$1,660 an ounce.

Cheung said silver would trade between US$27 and US$35 in the first half of the year and between US$33 and US$40 in the second half.

Apart from its status as a precious metal, silver is also considered an industrial metal. Cheung said mobile phones and many electronic products needed to use silver, which meant countries such as China, Japan and South Korea would consume a lot of physical silver for industrial purposes.

With strong economic growth seen for China and the rest of Asia, he said silver's fundamentals were strong this year.

But investors keen to trade silver would need to bear in mind that this metal was thinly traded compared with gold, which made it susceptible to big price movements, he said.

Schroders' figures show silver fell 10 per cent in 2011 after an 83 per cent rise in 2010 and a 48 per cent rally in 2009. The 2009 rally, in turn, followed a 48 per cent slump in 2008.

The daily gold trading volume at the Chinese Gold & Silver Exchange Society is about HK$65 billion to HK$80 billion. In comparison, silver trading accounts for only about HK$1 billion each day.

Silver traded between US$26.25 and US$37.14 an ounce last year. It hit US$50 in 1980s before bottoming out at US$3.50 in 1993.

After languishing in the US$6 region for a long time, the metal shot to about US$21 in 2007 before climbing to the current level.