Good old atomic number 79 has always been the safe haven of choice for skittish investors, but gold is about to get a run for its money. Despite the fact that the gold-to-silver ratio is at its highest point since 2004, New York-based hedge-fund adviser the Hennessee Group says silver is poised to outperform its glitzier counterpart.
Even though silver initially suffered as the global financial crisis deepened and investors fled to gold and Treasuries— in 2008, gold gained about 6 percent; silver plummeted more than 25 percent—it's now seriously undervalued, says Hennessee. At the same time, demand for silver is expected to grow over the long term. Unlike the majority of precious metals, silver is as vital to industrial applications as it is to the luxury trade—more than 50 percent of silver demand comes from industrial sectors as diverse as imaging, electronics, coinage, superconductivity and water purification. And while these sectors are currently taking a hit, their inevitable bounceback will support elevated silver prices.
In addition, demand for silver is expected to far outpace supply—from 1998 to 2007, silver generated from mine production grew at a modest 24 percent, while demand from industrial applications surged 44 percent. It's this significant shortfall, as well as the growth in silver investment funds like the iShares Silver Trust, that Hennessee thinks will lead silver to outperform as the economy starts to recover. Hi ho, argentum, away.