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By Melissa Pistilli-Exclusive to Silver Investing News

On Monday, silver closed up at $17.76 an ounce, while gold ended the day at $1057.50 an ounce.

Further dollar declines and inflation concerns are helping to propel not only precious metals prices but base metals like copper as well, which closed at $2.8330 per pound.

Increased inflation fears and dollar woes have pushed many investors into safe haven assets, so silver has taken much of its price direction from gold this year; however, as industrial production levels pick up the white metal will undoubtedly outpace gold.

Industrial use made up over 50 per cent of demand in 2008 and that figure will likely increase as economies recover worldwide. Silver is already benefitting from optimism in the industrial sector and rallying base metal prices leading some analysts to point out the correlation between recent silver price moves and the upward direction of the copper price.

Copper is viewed as the bellwether of the industrial metals and a rise in copper prices is generally a sign of economic growth. Copper prices have increased 58 per cent since their 2008 October lows with silver soaring 87 per cent, making gold’s 48 per cent gains pale in comparison.

A rebound in the copper price indicates both global economic recovery and inflationary forces are on the rise, which bodes well for dual-natured silver.

While gold’s recent shine may cast a favourable light on silver, its copper’s good fortune that will truly benefit silver over the long-term as rebounding economies fuel rising industrial demand.

Investment gurus like Jim Rogers of Rogers Holdings believe we’ll see the price of many commodities rise further as demand increases and the supply shortages created by capitol-challenged mining operations come into play.

“There was very, very few new production capacity brought on line in the past 30 years for commodities,” said Rogers at an ETF Securities conference in New York. He said “shortages [are] developing throughout the world” while demand is on the rise, reported Moming Zhou of Market Watch.

Chinese demand for copper in particular is surging with the State Reserves Bureau purchasing the metal “on a scale that appears to go beyond the usual rebuilding of stocks for commercial reasons,” reported Paul Farrow for The Telegraph in April of this year.

A weakening US dollar is also good for copper prices as it makes base metals cheaper to buy in other currencies.

(For a good discussion of how the dollar’s collapse will affect copper, gold and silver prices read this Commodity Online article.)

As far as silver prices are concerned, the fact that it is a much smaller market than gold or copper means investors should still anticipate greater volatility.

While we may expect pullbacks over the short-term as base metals prices fluctuate and precious metals retract from overbought levels, analysts like Walter de Wet, Head of Commodities at Standard Bank, feel “the likelihood of silver falling back toward the $13 level is becoming less and less.”

Over the long-term, robust investment demand, surging industrial demand and declining supply levels will propel silver prices further. So, while gold’s price direction will continue to show the way, silver investors would be wise to use copper as a price barometer as well.

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