Silver might be the poor man's gold, but it has been quietly outperforming its pricier cousin for the better part of this year, recently reaching 30-year highs.
But as the price of spot silver hovers just above the US$23 (Dh84.50) per ounce mark, analysts say investors should be wary of looking at the precious metal as a cheaper alternative to gold.
Spot silver prices rose 48 per cent last year, and have already risen by more than 38 per cent this year, while spot gold prices are up about 23 per cent, Reuters reported this week.
The prospect of further monetary easing in major economies has favoured the metal on two fronts. It rises with gold as an investment vehicle and alternative to paper currencies, while also benefiting from greater demand for industrial commodities.
This has made silver increasingly expensive compared with gold, with the number of ounces of silver needed to buy an ounce of gold slipping to its lowest in more than two years at 56.7.
"The gold:silver ratio shows quite a nice relationship with appetite for risk and ... that has clearly been improved by quantitative easing," says the Royal Bank of Scotland analyst Daniel Major, pointing to renewed stability in industrial commodities and equities.
"That has a double impact on silver. You have a stronger gold price and weaker dollar as well as improved risk appetite."
But risks remain. Silver is a very different animal to gold. While industrial offtake is only a small part of gold demand, some 40 per cent of silver consumption comes from industrial applications, such as electronics manufacturing, which have been hit hard by the downturn.
If precious metals investment loses momentum, any residual support silver takes from industrial demand will pobably kick in well below current price levels.
"The marginal increase in price has come from investment, not from industry," says James Steel, a metals analyst at HSBC in London. "Industrial demand sustained it above $15, but it did not take it over $20."
If investors continue to favour gold and silver, this is unlikely to be an issue. But if gold prices do enter a period of correction, whether large or small, silver will probably suffer an even sharper retreat.
The silver market is smaller and less liquid than that of gold, meaning price moves tend to be exaggerated.
"What if economic optimism towards emerging markets [China] gets reined in a bit and if the dollar recovers, albeit temporarily?" says Philip Klapwijk, the chairman of GFMS, a London-based precious metals consultancy. "We could see a fairly important correction across all the metals, and with silver it could be a bigger correction than most."
If interest in bullion investment drops off, silver's underlying fundamentals are less robust than those of other precious metals, such as platinum and palladium.
One of the largest traditional sources of silver demand, photography, has been in decline for the past decade, dropping from 218.3 tonnes in 2000, or nearly one quarter of total consumption, to 82.9 tonnes, or less than 10 per cent, last year.
Jewellery demand has also been falling, by about 10 per cent over the five years to 2009, as consumer interest in luxury goods is curbed by the downturn and high prices deter buyers.
Total silver production this year is expected to be about 23,000 tonnes, with an additional 7,000 tonnes from recovered scrap.
On the other side of the market, unlike other precious metals, there are few constraints on silver supply.
"If prices were to start coming down, silver supply is not necessarily going to respond because in the main silver is a by-product," says Nic Brownid, an analyst at Natixis.
"So if you have a situation in which the global economy continues to improve and demand across the base metals spectrum continues to be good, then silver supply will remain high even if prices start to scale back."
Investment will, therefore, have a major part to play in keeping prices at elevated levels. This year, it has surged.
The largest silver exchange-traded fund has seen inflows worth $528 million at today's prices, coin demand has risen, and speculative open interest in New York silver futures has climbed to its highest since March 2008.
But this has left the market looking toppy, analysts say. With many seeing a risk of correction in gold, especially if the US Federal Reserve fails to make significant steps towards further quantitative easing in November, silver is looking even more vulnerable.
"Silver is probably very overbought," says Ashok Shah, the chief investment officer at London and Capital. "There has been a lot of flight to safety money, a lot of momentum players in there, a lot of hedge funds, a lot of leveraged money. We really do need a good old dose of profit taking."
Mr Shah says a price correction after the kind of move seen recently in silver could run to 20 per cent - taking prices to about $18.80 - "without blinking an eyelid".
However, at that level, he says, it still represents a prime buying opportunity for those who have confidence in a continued rise in gold.
"You need all the excess overbought positions to be worked off," he adds. "A correction like that would be very, very healthy indeed."
However, buying shares in a silver producer with a strong growth profile could pay off, according to Bart Melek, a senior economist at BMO Capital Markets. Share prices in the sector have jumped as much as 70 per cent since the beginning of the year.
"Many of those companies have a very good growth profile. In the next two, three, four years, they're going to be producing more metal than they are now," says Mr Melek. "And there's value to that.
"I think silver will most likely continue to outperform gold. Silver benefits from being gold-like and it benefits from being an industrial metal, which I think is going to tighten up the supply-demand balance down the road."
Silver is also used to back exchange-traded products and exchange-traded funds (ETF). A silver-backed ETF is a fund that trades on the stock market and follows the value of silver. It is more secure than stocks because its value is backed by real silver, but there are higher costs because the silver has to be stored.
"Fundamentally, we perceive the companies - and that holds for gold and silver producers - as better bets than ETFs. The ETF has storage costs, and all sorts of costs associated with it," says Mr Melek.
* With Reuters
