Investors seek a silver lining

The metal has nearly quadrupled in value in the past 10 years, and provides a less expensive entry point.

Gold's rapid rise to more than US$1,000 per ounce has led to a growing number of investors switching to silver, which is more affordable and has also appreciated greatly in recent years.

Gold's slightly duller, less sexy cousin may be worth a second look for investors in search of a safe haven for the months ahead and who can't afford the yellow metal's high entry point. The price of silver, which is historically more volatile than gold because it is in shorter supply, has almost quadrupled since the early part of the decade, when it traded below US$5 (Dh18.36) per ounce. It is now trading at just under $19.

Those who are bullish on silver note that even after the commodities boom of recent years, the metal has still not reached its all-time high. But that statistic is somewhat misleading, as the previous high was artificial. In the late 1970s, the Texas billionaire brothers, Nelson Bunker Hunt and William Herbert Hunt, who were probably better known as the Hunch brothers, conspired to corner the market on silver and accumulated a third of the world's supply. This sent the price of silver skyrocketing, from $11 to $50 in just a few months. They lost a huge chunk of their fortunes when the price plummeted in January 1980 on what is now known as "Silver Thursday".

The opportunity for price manipulation is not entirely in the past. Just this month, the US government reportedly launched a federal investigation into whether the investment bank JP Morgan deliberately depressed the price of silver. However, despite those risks, there is a case to be made for silver. Production is not keeping up with demand, and silver presents a more affordable entry point into owning physical quantities of precious metals when compared with gold.

Dan Dowding, a Dubai fund manager with Killik and Company, says silver is significantly "under-owned" by most of his Western clients. And others in the region have noted that some Indian investors - who traditionally buy gold - have shifted into silver as a better-value investment. As with gold, individuals looking to take a position in silver can buy physical coins or bars to keep on hand, or buy positions in a mint of either allocated or unallocated silver (allocated means a bar is actually assigned to the buyer; unallocated means the buyer purchases the right to buy silver, and therefore accepts a minor risk that the silver will not be available when requested).

In addition, there are a variety of exchange-traded funds, such as the iSharesSIlver Trust, that provide easy access for investors who prefer to trade silver more like a stock. [e-mail]