Will Silver Continue to Shine?

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Gold dominates the headlines, but many investors are beginning to set their sights on silver as it creeps back toward its nominal high of $50 an ounce. So what's behind the spike in silver prices and will the momentum last?

Silver in high demand
Silver is a multipurpose metal used in many industrial applications. It's also a popular store of value to which investors flock in times of uncertainty. Evidence suggests both are contributing to the rise in silver prices.

The U.S. Mint reported all-time record sales of silver eagles in the month of January. The surge in demand has even prompted eBay (NAS: EBAY) to devote a portion of its site to the precious-metals trade in order to satisfy demand from individual investors seeking an inflation hedge.  

China is also on a silver spending spree in order to meet its industrial, retail, and investment needs. The increased demand has actually turned China from a net exporter to a net importer of silver. Some have even speculated that China is taking a rather large position in the iShares Silver Trust (NYS: SLV) with the intention of taking physical delivery.

Will the momentum last?
Silver bulls believe the precious metal will move even higher when inflation takes hold. Some even believe silver is destined to return to its all-time inflation-adjusted high of $140 an ounce. First Majestic Silver Corp. (NYS: AG) predicts at least $100 silver.

Other silver optimists include U.S. Rep. Ron Paul, R-Texas, who owns shares in silver producers Hecla Mining (NYS: HL) and Pan American Silver (NAS: PAAS) .

Others aren't so optimistic about the outlook for silver prices. Many hedge funds are selling their silver holdings, not the least of which is George Soros'. The manager of Soros' fund believes the Fed's actions will be bearish for precious metals.

The game plan
Watch the actions of the Fed, as any indication of additional quantitative easing is most likely bullish for silver. But be forewarned, silver prices are volatile, therefore the conservative investor may want to steer clear. Use the following links to get these stocks on your free, personalized stock-tracking (Foolish) watchlist.

At the time this article was published Fool contributorAdam J. Crawforddoes not own shares of any company mentioned in this article. Motley Fool newsletter services have recommended buying shares of eBay. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has adisclosure policy.

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