iShares Silver Trust (ETF) (SLV)

Investment in precious metals has always been a back up option to protect against the vagaries of monetary fluctuation and economic factors like inflation. Here gold, the most prominent of the precious metals has always found favor thus relegating others to the backburner. Investors were vary of putting their money in silver after the volatility it went through during the late seventies and early eighties.


The year 2006 saw silver demand increasing by 3%, thus taking the total annual demand to 911.9 million ounces the highest since 2001. This rally was led by industrial usage that increased by 11% backed by India and China. Except photographic a application - which thanks to the advent of digital technology is on the decline - silver demand across all industrial applications was on the rise. This year also saw the culmination of the strong revival of investment demand in silver, which started about five years back. This was one of the factors that drove the prices of silver to the high levels of near $15 an ounce recorded in May 2006, the highest in 24 years.


Along with this investment surge, the movements in crude oil, stock markets and U.S interest rates also influenced the pricing. These factors are similar to the scenario in 1979 and 1980 when silver prices was at $50 an ounce. The future is not looking to support the high price as the crude oil prices and U.S interest rates have declined or slowed down. Moreover fabrication demand, which forms half of the total industrial demand, is forecasted to fall by 3%. Photographic applications, which has been declining, is expected to fall by 11%. This factor coupled with an electronic cycle downturn that is imminent is expected to slow down the silver demand from what was observed during 2006. This will have an effect on the pricing with, price coming down from the records high reached during May 2006 and this will be a let down for investors.