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WHY IS SILVER SO EXPENSIVE? |  May 11, 2011 (0 comments)

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New York, NY—Apart from a brief blip to about $12 an ounce around 1984, not since the days of the infamous Hunt brothers has silver cost more than $10 an ounce. Indeed, for more than 10 years, the metal barely edged above $5.00 the ounce—perhaps that’s what tarnished its reputation, so to speak, relegating it in many prestige jewelers’ minds to the bridge jewelry category, rather than fine.

Now, however, silver is at its highest price ($38/oz at presstime) since the Hunt brothers, having posted a 38.4% increase in price from 2009 to 2010. And with more and more top-name jewelry designers adding silver lines, it’s a a chic option for consumers who want a designer look but are put off by the cost of gold.

According to the CPM Silver Yearbook 2011, a combination of strong investment and fabrication demand is driving the metal’s meteoric rise. As the global economy recovers from the Great Recession, fears remain of factors that may derail the recovery, such as European sovereign debt issues or the U.S. budget deficit, leading investors to purchase large amounts of silver as a hedge against global political or economic debacles, says the report.

Demand for safe haven assets like silver is expected to remain strong even in the face of economic improvement. Even at current prices, the relatively low cost of silver compared to gold should help keep it attractive for those who want a safe haven asset but have limited finances.

Growth in fabrication uses—mostly electronics and solar panels—also is fueling the rise in silver prices, says the Yearbook. Rising incomes in developing nations are driving demand for consumer electronics that use silver in their components, and increasing demand for sustainable energy is boosting the solar panel industry, of which silver also is a key component.

Silver supply outlooks are positive—both mine production and secondary supply rose in 2010 and are expected to continue growth. In terms of secondary supply, as one jeweler told The Centurion, “Every week at least one person comes in with a big brown box, and I know it’s going to be full of Grandma’s silver that nobody in the family wants.”

The full report is available for purchase from CPM group. Click here for more information.

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