^[1]By Melissa Pistilli-Exclusive to Silver Investing News

Silver along with other commodities rallied overnight on news of China's $586 billion stimulus package ^[2] intended to aid in boosting domestic demand.

Silver price benefitted from a rising gold price spurned on by a dollar under pressure, as well as from the boost in base metals such as copper.

"The weakness in the U.S. dollar... and the rise in crude oil and industrial metals" are a reflection of China's announcement, said Dresdner Kleinwort, Consultant, Peter Fertig ^[3]. China's plan involves taking ten major steps towards combating the global economic crisis. These include relaxing credit conditions, reducing taxes, enhancing investments and financing public-works projects.

The purpose of the plan is to boost domestic demand. The government has chosen to remove credit restrictions on commercial banks in order to open up lending to projects in rural China, small and medium-sized businesses, technical innovation, and mergers and acquisitions, said Xinhua News ^[2].

The $586 billion is intended to finance 10 programs by the end of 2010 including transportation, post-disaster reconstruction, ecology, rural infrastructure facilities, and low-income housing. "This should spur investment in housing and infrastructure in the next two years, which will (lead to) stronger demand for energy and base metals," said Fertig. "The size of the package, to be spent over the next two years, provided a surprise boost to the market," said Barclays Capital analysts ^[4].

Canadian commodities stocks experienced a much needed lift on Monday morning on market expectations that the stimulus package will increase demand for industrial commodities needed for the proposed public works projects. The S&P/TSX Composite Index ^[5] increased by 2.62 per cent to 9,847.85 points in early trading.

"The news from China has also boosted base metal prices, which have made strong gains across the board," said Commerzbank analyst Eugen Weinberg ^[2]. "Copper is highly cyclic, therefore, should benefit most from the forthcoming measures, which are expected to include investment in housing and infrastructure projects." Nickel surged 13 per cent, zinc climbed 7 per cent, and copper rose nearly 10 per cent. Mining stocks gained 6.5 per cent. Gold also reached a high of US$768.30/oz.

Silver, which as both a precious metal and an industrial metal tends to track gold as well as copper, also benefitted by the announcement rising to a high of US$10.50 after closing Friday at $9.97/oz.

China's silver output may decline

Other news out of China could also have a positive effect on the price of silver. The world's third largest silver producer has announced that refined silver output ^[6] has peaked and is not expected to grow. Higher costs, lower metals prices, and reduced incentives have led many of the nation's producing companies to stop expansion projects.

Annual silver output growth began to slow last year to 10 per cent, down from an average of 30 per cent from 2001-2006. Higher labor costs and export taxes have reduced many producers' margins, said Zhou Juqui, chairman of the gold and silver division at the China Non-ferrous Metals Industry Association. He expects growth will slow down even further.

The China Non-ferrous Metals Industry Association is currently lobbying the government to reinstate the export rebates on silver that the government revoked in July.

Cheer for silver miners?

Slowing growth in silver output from China will no doubt contribute to the current supply/demand imbalance in the silver market, but the world's silver miners may also benefit from China's increasing reliance on silver imports.

According to Li Xiaoni ^[6], Vice President of China Chamber of Commerce of Metals, Minerals and Chemicals Importers and Exporters, "China has the world's biggest potential for silver consumption." Currently, the nation's consumption, which has increased more than 10 per cent in recent years, accounts for 70 per cent of global industrial use.

Silver standard resources up 10 per cent

Silver Standard Resources [TSX: SSO] ^[7] benefitted today from market speculation that the Chinese economic stimulus package will boost metals demand. Shares ^[8] in the silver miner rose over 13 per cent to $12.32. With a 52-week high of $42.44, the company is still trading at a bargain.

Silver Standard is a development stage company with silver projects in Argentina, Australia, Canada, Chile, Mexico, Peru, and the U.S. The company is currently transitioning from development to production on the Pirquitas project in Argentina. Upon commencement, the Pirquitas mine will be one of the largest open pit primary silver operations in the world with an expected average annual production of 10.9 million ounces of silver.

Silver Standard is also aggressively advancing its high-grade, gold-silver joint venture project, San Luis, in Peru and its Pitarilla silver project in the historical silver region of Durango, Mexico.