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By Melissa Pistilli-Exclusive to Silver Investing News

The price of silver once again tested the $14 barrier Monday as oil rallied, the dollar fell to its lowest point against the euro in over eight weeks, and risk-appetite increased.

However, silver was unable to hold above this important psychological level as it tracked gold lower on Tuesday once the greenback recovered against the euro and oil slipped. By 1:00 PM PST silver was trading at $13.74 an ounce.

Silver vs. Gold

Despite Tuesday’s market setback, silver continues to outperform gold and precious metals analysts believe the white metal will encounter less resistance than gold going forward. “We still believe that it will outperform gold in the current market environment,” said StandardBank commodity analyst Walter de Wet.

For 2009, the silver London fixing (global benchmark for spot trading) has gained 30 per cent; a strong rally compared to gold’s 10 per cent advance.

Also, investment demand for silver through exchange-traded funds (ETFs) is on the rise as demand for gold has fallen in the last two months.

Holdings in the largest silver ETF, iShares Silver Trust, haven’t seen a decline since June 2 and maintained a record high of 8,766.93 metric tons Friday, according to MarketWatch reporter Moming Zhou. In comparison, says Zhou, holdings in the largest gold ETF, SPDR Gold Trust haven’t posted marked increases since early June and were down nearly 4 per cent from a month ago on Friday.

Although silver usually moves in tandem with that of its yellow cousin, its role as an industrial metal helps it to outperform gold when the commodity sector is rising higher.

“Silver prices have done OK, but you could expect them to do much, much better. I think silver should outperform gold over the next year as the industrial cycle picks up,” said Citigroup analyst David Thurtell.

ETFS: Silver on Road to Recovery

Silver industrial demand is expected to rise in the second half of this year and it seems investors are growing increasingly confident that silver’s value will continue to grow as the global economy recovers.

“You are certainly in an environment where there is that assumption that the economy is turning around,” said Alaron Metals Services managing director David Meger. “Interest rates remain low and the dollar remains under pressure, which is conducive to a commodities rally.”

There is generally a more upbeat feeling in the markets and investors are wading back into the water. The popularity of silver ETFs as an investment vehicle is a sign that investors are anticipating economic recovery.

On Friday, ETF Securities USA LLC launched a new silver ETF on the New York Stock Exchange’s Arca platform. The ETFS Silver Trust SIVR expects to hold over $1 billion in physical silver at HSBC in London within the next twelve months, according to William Rhind, head of sales and marketing for the company’s U.S. division.

ETFs and Spot Price

The new silver ETF is expected to heighten demand for the white metal. “ETFs increase investors’ accessibility to silver and they contribute a premium to the price of the metal,” said Jon Nadler, senior analyst at Kitco Metals Inc. Already this year, Nadler says, ETF purchases have contributed a $1 to $2 an ounce premium to silver prices.

“Silver can be extremely volatile and the more participation we can get, the better. It’s definitely a plus for the structure of the market,” said Bill O’Neill, managing partner of commodity firm LOGIC Advisors.

Because silver ETFs offer investors a unique way to own physical silver, they can “mop up a significant amount of metal in a given market, potentially pushing up prices,” says a Reuters report.

They also offer investors a unique way to gain exposure to silver spot prices without the burden of actual physical possession or the risk associated with mining equities.

However, ETFs are not without their own risks, especially in the case of a volatile commodity like silver.

“Silver investment has to be [approached] with caution, because until we get a tangible economic recovery, silver and other commodities ETFs in general are still subject to the influence and fickleness of speculative momentum funds,” advises Nadler.

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