Prospects for Silver May Be Brightening

Gold may be getting all the glitter these days, but now silver is also starting to shine.

In just the last two months, the price of silver has jumped about 25%--a substantially better percentage boost than gold. And some experts maintain that a variety of factors are combining that could push the price even higher.

What makes the prospects for silver so bright? The answer depends on whom you talk to.

Gold enthusiasts maintain that the main factor driving silver prices is gold, which is climbing thanks to renewed worries about inflation and economic uncertainty. Higher inflation is good for all precious metals because gold, platinum and silver are used as safe harbors when the value of currency seems suspect.

But relatively small hikes in silver prices translate into big percentage gains because the metal is so cheap. Now selling for about $4.50 an ounce, it is about 80 times less expensive than gold, which goes for about $370 an ounce.

“Silver has always been the poor man’s gold,” says Bruce Kaplan of Kaplan & Co., a Santa Monica-based precious metals firm. “And the price of gold is going up, so eventually it will drag silver up with it.”

If President Clinton’s proposed tax hikes go into effect later this year, as some predict they will, precious metals may get another boost because they don’t generate taxable interest income.

Simply put, bullion does not pay interest or dividends--a detriment to most investors but a benefit to those who are tax-averse. And more people want to avoid taxes when income tax rates rise.

However, some unusually optimistic silver proponents believe there is a variety of other fundamental reasons why the metal could boom.

Ironically, the most compelling argument for silver’s future may be its sorry past.

Silver has been one of the worst investments of the last two decades, suffering a near constant slide in price since it peaked at about $50 an ounce in 1980. At today’s prices, silver is hardly worth mining, some experts say.

“The whole malaise in the silver market is creating a really explosive situation,” says James DiGeorgia, editor of the Silver & Gold Report in West Palm Beach, Fla. “I think this is a dynamite opportunity.”

Indeed, says Kaplan, the “downside risk”--or chance that the metal could significantly decline in value--is relatively slight. If silver prices slide too much, people will stop mining it, which will keep supply and demand in balance and stabilize the metal’s price.

However, DiGeorgia believes that demand is about to dramatically outpace supply largely because of the Clinton Administration.

The President’s environment-friendly policies may curb silver mining because many mining techniques are destructive to the Earth.

If miners must be more cautious, their costs could rise. And that might force additional miners out of the business and further restrict silver supply, he says.

At the same time, refined silver, used in silverware and jewelry, is in great demand in Western Europe and Japan, according to the Silver & Gold Report. Sales are twice what they were in 1980.

Moreover, the metal is an industrial commodity that’s used in everything from computers and fax machines to solar heating panels, electronics and film. Despite the ebbing supply, industrial demand remains constant--and in some cases is rising.

DiGeorgia believes the Clinton economic program will boost industrial demand because it pushes for clean energy sources, such as solar and electric power. More solar energy would push up silver sales because silver is used in solar cells to collect energy. It is also a vital component in all sorts of electric technology because of its conductivity.

However, other silver experts are less optimistic about the chance that demand from “clean energy” companies could drive up prices.

“That’s a bunch of hooey,” Kaplan says. “There is an abundance of silver around the world, even though a number of the big mines have cut back. And the increase in use of silver for industrial purposes is simply not growing dramatically enough to cause an imbalance in supply and demand.”

Energy experts agree. Although solar sales have been growing at a double-digit rate for the last several years, they are still so slight that the total amount of silver used in U.S. production amounts to about 3,300 pounds, says John H. Wohlgemuth, director of research and development at Solarex in Frederick, Md.

Even if the Administration pushes clean-fuel companies and the industry grows at a record rate, it is not likely to be a major silver consumer for a decade or more, says Douglas R. Bohi, director of the energy and natural resources division of Resources for the Future in Washington.

Nonetheless, most experts still believe the metal is on the rise.

It may be a good bet for those who want to play the precious metals market but do not have the wherewithal to buy gold.

Silver Lining Silver prices have jumped by more than 10% since they hit a low in late February. London silver prices weekly closes Friday: $4.44 Source: Bloomberg News Service