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By Melissa Pistilli-Silver Investing News

Precious metals prices have continued their upward trend with gold flirting with $1200 an ounce and silver hinting it may reach $19 an ounce before the year is out.

Silver prices for 2009 have risen like a phoenix from the financial ashes mainly on the winds of strong investment demand. As 2010 approaches, some analysts are predicting this trend will end as the financial sector stabilizes and market fears abate. However, others are confident resurfacing industrial demand will pick up the slack and bring silver prices higher into 2010.

With price positive factors such as gold’s strong performance, the US dollar on the ropes, inflation fears continuing into 2010, and resurging industrial demand in Asian markets, silver is likely to breach the $20 level say some confident analysts.

Silver will no doubt continue to follow gold higher and investment demand for its yellow cousin shows no signs of abating in the short term. Recent purchases of gold by central banks in India, Russia and Sri Lanka along with the latest news from the United States’ largest depository HSBC, clearly indicate a thriving appetite for precious metals investment.

Reports are circulating that India may purchase additional gold on top of its recent 200 tonne acquisition from the International Monetary Fund. Bank of America Merrill Lynch, Societe Generale and Barclays Capital analysts have all predicted more central bank purchases in the future.

“Actions from central banks are very important at the moment,” said Commerzbank AG analyst Eugen Weinberg. “The purchase from India was like a seal of prices above $1,000 an ounce. Also, other central banks are buying gold.”

Adding further proof the record run on precious metals as safe-haven assets is likely to continue is HSBC‘s recent announcement to its retail customers that they need to move their holdings from its Fifth Avenue depositary so HSBC can make room for bigger institutional clients.

2010 Price Forecasts

According to GFMS Ltd, silver will likely move past $20 an ounce in the short-term on strong investment demand. For 2009, the London-based firm pegs the annual average price at $14.78. Their Base Case scenario for 2010′s annual average price puts it slightly lower than 2009.

CPM Group is more bullish in the forecasts. CPM Group commodities analyst Chintan Parikh says growing industrial demand and continued investment demand should help silver push past its nearly $21 an ounce high from 2008 and may even bring it up to $25 an ounce.

Surging Industrial Demand

While industrial demand for 2009 is expected to be down about 20 per cent, GFMS expects industrial demand in 2010 to reach “normal levels” as markets recover and new markets emerge.

“Silver is a unique metal that wins whether the economy is going well or is in bad shape,” said Parikh. “In the latter, the investor buys it as a hedge against the downturn in the economy and the markets. And if the economy improves, then the industrial demand increases.”

GFMS research director Neil Meader says, “It is becoming an increasingly industrial metal and novel new uses will also likely assist the recovery in silver’s demand.”

New markets for industrial use include solar panels, biocides, medical equipment, LCD/plasma TVs, water purification, and silver-zinc batteries for use in small portable electronics to automobiles. Parikh believes the silver-zinc battery sector will be “one of the major drivers behind a rise in prices because it may absorb a lot of silver.”

He points out that electric cars are expected to really take off in China as it tries to diminish its foreign oil dependency and reduce fossil fuel pollution. By 2020, over half of the Chinese auto market is expected to be electric and hybrid plug-ins. While a lot of talk is centered on lithium-ion batteries, silver-zinc may prove a safer choice given concerns about overheating.

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