By Melissa Pistilli-Exclusive to Silver Investing News

In the view of the many silver bulls, the precious metal is back on track towards regaining its historical role as a hedge against inflation. As the global financial crisis deepens, silver may soon be tested as inflation is projected to soar.

At the third annual London Silver Investment Summit held yesterday, precious metals fund manager Ned Naylor-Leyland of Cheviot Asset Management gave an interesting presentation on the future of silver in the current global economic climate.

The idea of silver as money rather than solely a metals commodity may gain strength, according to Naylor-Leyland, as the “death of fiat money” becomes more likely. Although, he does admit, the idea of silver or gold backing world currencies will not garner serious support from the governments and central banks.

Despite what the paper markets may lead the investment community to believe, Naylor-Leyland remains positive that physical silver and silver equities are “compelling” investments. The spot price is not reflective of the true demand/supply situation and the market “has not understood the dynamics of silver compared with other industrial metals,” he said.

Significant inflation on the way

As governments increase the money supply to tackle the current financial crisis, the result will most likely be “unmanaged or out-of-control inflation,” said Naylor-Leland. The Federal Reserve cut key interest rates by half a percentage point to 1 per cent last week. On Thursday,  the Bank of England cut its key interest rate from 4.5 per cent to 3 per cent, and the European Central Bank and Swiss National Bank both cut their rates, but by much smaller amounts. “With the Bank of England and the ECB cutting interest rates, central banks are attempting to inflate their way out of a deflationary slump,” said Mark O’Byrne, Executive Director at Gold & Silver Investments.

Increasing global rate cuts could stoke inflation worries and send precious metals prices higher as investors return to the inflation safe haven of gold and silver.

“The underlying threat of stagflation has not gone away and with central bankers and politicians adopting ‘inflate or die’ fiscal and monetary policies, the gold price looks set to continue to outperform in the coming years,” said O’Byrne.

As evidenced by the losses in the global stock markets today, there still remains much uncertainty in the markets despite the final results in the U.S. election. “Now that at least one major uncertainty is out of the way – the small matter of the U.S. presidency – markets are now confronted with a myriad of other financial and economic uncertainties,” O’Byrne said. “Indeed, conditions now are arguably more uncertain now than at any time since the 1970s and even the 1930s.”

“Important elections often see markets reverse course and witness trend reversals, and this is one of the most momentous election victories in U.S. history.”  O’Byrne had previously projected that the precious metals sell-off would likely end by Election Day and he believes “that this has indeed happened and that gold will resume its secular bull market in the coming weeks.”

Some precious metals analysts, such as Rogers Holdings Chairman Jim Rogers believe silver is an even better investment than gold. “Silver will do better than gold,” said Rogers. “It’s been beaten down horribly. If you put a gun to my head and said you have to buy one, I would buy silver rather than gold.”

Besides recommending silver bullion, Naylor-Leyland also views shares in silver mining companies who are likely to pull through the current crisis as sure bets.

Hecla Mining Company: Sure bet to weather the current economic storm

Hecla Mining Company’s [NYSE:HL] 117-year history makes it the oldest U.S. based precious metals mining company.  First established in northern Idaho’s Silver Valley, the company is the lowest-cost primary silver producer in all of North America and has been traded on the New York Stock Exchange for 40 years.  As a stalwart in the precious metals community, it’s safe to say Hecla will weather the current crisis and maintain its recognized status amongst silver producers.

“The fundamentals for our business are probably the best they have ever been,” said President and CEO Phillips Baker, who is confident that silver prices will bounce back from current lows. “While there is a great deal of short-term uncertainty about the prices of metals we produce, I believe that, in the long term, the fundamentals have never been better. Silver, like gold, should eventually perform well as a result of all the liquidity injection into the economy and what we believe will be the ultimate impact on the US dollar,” said Baker.

Hecla was North America’s lowest-cost primary silver producer in 2007.  The company produced 5.6 million oz/Ag. at an average total cash cost of negative $2.81/oz. Earlier this year, Hecla acquired a 100 per cent interest in the world’s fifth largest silver mine, the Greens Creek mine in Alaska.  The acquisition is expected to nearly double the company’s annual silver production to about 11 million ounces by 2009.

On Thursday, Hecla shares were trading at US$2.06, down from $13.03 in April.

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