Market analysts are predicting significant movement in the silver market. As gold prices continue to decline, will silver steal the financial trading limelight to become one of the best commodities to hold in 2013?

Historical Prices

In January 1980, the price of silver reached £17.18 per troy ounce – a rise of more than 2,000 per cent since February 1970, when the precious metal was worth just £0.79. Silver prices slumped in the decades to follow, falling to £2.72 in June 2003 and rarely going above £3.50 until a sharp increase in 2005.

In contrast, the price of gold experienced few significant peaks and troughs until 2007, when the financial crisis began to grip the developed world. Gold prices soared from £329.93 on the 1st June 2007 to peak at £1,131.69 on the 23rd February 2012 – a rise of more than 240 per cent over the period. Illustrating how valuable gold had become, the price of bullion increased by more than 7,600 per cent between 1970 and 2011.

Most commodities are traded more aggressively during financial crises as investors aim to offset losses in paper currencies. Silver is traditionally regarded as the poor man’s gold, not least in the UK, where investment gold is not subject to VAT (unlike silver). Between July 2007 and April 2011, however, the price of silver increased at a greater rate than gold, rising by 310 per cent to peak at £25.87 during the height of the downturn. Although all eyes were on gold, silver had outperformed its more illustrious cousin.

Silver in 2013

Of course, there is no suggestion that the price of silver will match that of gold, but the fortunes of the two precious metals certainly appear to be following fundamentally different curves. Gold prices fell in 2012, slipping from a high of £1,131.69 to a low of £969.95 in May. In early January 2013, the price of gold traded just above the £1,000 mark, but many experts predict that prices will continue to fall slowly as the year progresses.

Silver also suffered a rough ride last year, falling from £23.34 in February to bottom out at £17.12 in May. In the opening weeks of 2013, silver struggled to break through the £19.00 mark, but market analysts predict a much bright future for the commodity.

According to Ian Williams, a City-based asset fund manager, silver is destined to enter a “sustained bull market” in the coming weeks. Mr Williams believes the price of silver will increase fivefold between now and 2016, with a peak expected in the third quarter of 2015.

Based on established trading formulae, the prediction comes with a caveat: silver will outperform gold, but prices will be far more volatile in the short term. Anticipating a three-year rise of 400 per cent, Mr Williams expects the price of silver to increase above the £100 mark before 2016. After a slow start, silver prices should recover well above £25 before the end of the current year. Gold should rise too, but at a much slower rate. The price of silver in 2013 and beyond hinges on the state of the UK economy and the extent to which the Bank of England implements further quantitative easing measures.