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By Melissa Pistilli-Exclusive to Silver Investing News

After closing over $15 an ounce on Tuesday, the price of silver is up about 8 per cent over the past month. In all respects, silver is putting on a bullish display early in the September rally season.

On the year, the silver price is up 32 per cent. Whether or not silver remains on this upward path relies on economic sentiment in the markets.

For now, that sentiment is pointing towards global economic recovery. Economies in Asia and Europe are beginning to shows of a rebound and some have even pulled out of their recessions including Japan, Germany and France.

Last year, industrial demand made up over half of overall silver demand. The possibility of recovery in the electronics sector, responsible for most of silver’s industrial usage, is promising with major companies like Dell and Intel Corp. reporting better than expected gains. “A recovery in these sectors could boost industrial demand for silver significantly,” said James Steel, analyst at HSBC.

The Copper Correlation

Resurging industrial demands for base metals is also fueling the positive outlook for silver. “Investment demand is the main driver of silver, but it is also benefiting from the positive industrial outlook and the rally in the base metals,” said Matthew Turner, VM group analyst.

While silver’s price direction often moves in tandem with gold‘s, copper, the bellwether of economic health, is also know to affect silver prices.

As market sentiment began to lean towards impending economic recovery earlier this year, the correlation between silver and copper prices also began to rise, from 0.1 to about 0.74 in July, according to Reuters.

“There has been so much industrial metal demand that silver is riding on the coat tails of that,” said Turner.

For now, copper’s direction may be a better indicator of silver market health than oil, the dollar or gold. But, don’t count those three out entirely. Wise investors will remember silver’s volatile nature associated with its dual role as industrial as well as precious metal and its small trading market.

Silver Continuing to Outperform Gold

Silver’s role as an industrial metal often leads it to outperform gold during times of economic recovery and growth.

“Silver has really taken its lead from gold this year,” said Walter de Wet, analyst at Standard Bank. “But now, with industrial production picking up, you have to favour silver, relative to gold at least — as long as industrial demand keeps growing.”

Currently, the gold/silver ratio is about 1:63.6, or nearly 64 ounces of silver for one ounce of gold, compared to 79.5 at the beginning of 2009. Silver’s gain against gold is indicative of growing investor confidence in a global economic recovery, so keep an eye on this ratio over the next few months along with copper prices and news out of China and the electronics industry if you really want to gauge silver’s next move.

Will Silver Hit $21 Again?

In a recent interview with Hardassetsinvestor.com, silver-guru David Morgan said he believes silver can “reach the $21 high it experienced last year and move upward,” especially if gold can breach the $1,250 or $1,300 level.

How about pushing higher than the $21 peak reached in March 2008?

Morgan says he can see silver reaching $25 an ounce next year. “When markets go into a profitable scenario – especially in a thin market like silver – everyone asks the question, ‘How high is high?’ So you have very few sellers, and they are all holding or buying more. That puts more upward pressure on the metal. I think we’re going to get to that scenario sometime in 2010.”

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