Is the silver price heading for a fall?

On Thursday last week, silver reached its highest level since February 1980. For the past two years it has outpaced gold as the precious commodity to own, but is the price now set for a fall?

Certainly, the fundamentals are sound. Declining mine production has resulted in a tight supply as demand continues to rise.

Investors are still keen on silver because of currency and geopolitical concerns. Holdings in the iShares Silver Trust, the largest silver exchange-traded fund (ETF) in the world, increased by 179 tonnes to 11,140 tonnes in the week to March 24. Gold holdings in ETFs fell over the same time period.

"The psychologically important mark of $40 a troy ounce is meanwhile within a reachable proximity," Commerzbank said on examining the ETF figures.

The fact that investors are keen on silver means that ETFs take supply out of the market, which can mean price rises become a self-fulfilling prophecy.

Silver is also an industrial metal, so demand for it is rising as the global economy recovers. Although it is no longer used much in photography, as the industry switches to digital applications, its use in electronics sectors, especially in semiconductor production, is increasing. There are also new applications for the metal emerging, such as silver oxide batteries. (read more)