Silver prices hover near high

KELLOGG - Silver prices are remaining near their highest point in decades.

There are, however, opposing views when it comes to the current silver market. On one side are investors like hedge fund manager John Paulson, who see silver and gold as a form of insurance against inflation and protection from central banks.

On the other side are those like George Soros, who argues that inflation will undoubtedly be kept in check by a watchful Federal Reserve.

"Silver prices are parabolic," said John Burbank, who runs hedge fund Passport Capital in San Francisco. "But the time to buy again will be months away."

Silver is more prone to peaks and dives than larger markets like gold because the larger investors in the gold market often step in and subdue market shifts, whereas silver markets don't have such stabilizing forces.

In addition, much of the world's silver is held by private individuals in the form of coins, bars, medals and jewelry. Analysts estimate that only 5 percent of the world's silver is held by central banks or institutions at any given point in time, compared to 17 percent of the world's supply of gold.

The eight-month surge in silver prices has suggested a speculative frenzy rather than inflationary fears or concerns over currency.

The recent dives in silver can be partially blamed on the same thing that has reversed other market booms in the past - margin hikes.

The greater the price of a commodity the greater the margin requirement, or how much a trader must put down for collateral. The increases are meant to slow unstable increases in the market. Silver's margin requirements were hiked five times before prices began moving downward.

Today 40 percent of silver production is funneled into the technology industry, due to the application of silver as a conductor in electronics like cell phones, circuit boards, solar batteries, water purifiers and plasma TVs.

Demand from large industrializing nations like India and China will have major long-term impacts on silver prices as well. Global demand is expected to jump to 36 percent by 2015, according to moneymorning.com and the Wall Street Journal, making silver a relatively low-risk bet in the long-term; only a decade ago, the closing price for silver in April averaged $4.44 an ounce.

Last week, silver barely missed the milestone $50 level, a price not seen since 1980 when the Hunt brothers attempted to corner the silver market only to see their plans evaporate after they could not meet a $135 million margin call. They eventually lost more than $1 billion and had to be bailed out by banks.

"Everything seems to be much more calm and deliberate compared to the boom in the '80s," said Fred Brackebusch, president of New Jersey Mining Company. "This seems like a more stable long-term increase, not just a boom and bust."

The price of silver closed Friday at $35.01 per ounce.