Silver ETFs: 5 Reasons It’s the Metal With Two Faces

October 09, 2009 at 11:00 am by Tom Lydon

Silver is gaining appeal with exchange traded fund (ETF) investors, thanks to its incredible versatility. It’s used in everything from photography to jewelry, it’s a safe-haven investment and it’s an efficient water purifier.

This week, precious metals did well because of a decline in the U.S. dollar and rising oil prices.

Melissa Pistilli for Silver Investing News reports that certain factors such as inflation, the pace of the global recovery and a return to the levels of growth in commodities demand that the world experienced prior to last year’s crash will impact the way silver is approached and marketed to investors. (More about silver can be found here).

Silver has a dual personality- it can be treated as a precious metal or an industrial metal. Here are some points about both approaches:

Silver tends to rise as gold prices rise, particularly when gold is used as a safe haven. It holds monetary status and its low price relative to gold makes it much easier to acquire.
Industrial demand can make silver more volatile than gold, which is why it tends to outperform gold in good periods but decline more sharply in bad ones.
Some believe that silver’s price actions over the last year are mostly because of its precious metal properties, which serve it well when inflation fears are high and the dollar is weak.
Silver is the best electrical conductor, the most reflective metal and the second-most malleable of all metals, and more patents have silver as a component than any other metal.
Another factor to consider in supply and demand fundamentals is that above-ground silver supply levels were affected by the economic downturn as cash-strapped mining companies cut exploration, development and production operations.

For now , silver has enough support with the safe-haven appeal. For the silver market to sustain price levels above the $16 to $17 range, however, analysts say that we’ll need to see a rise in industrial demand.