By Melissa Pistilli-Exclusive to Silver Investing News

The price of silver rallied in early morning trading Monday in reaction to dollar weakness and increased insecurity in the markets. 

After closing Friday at $9.64/oz in New York, silver reached as high as $10.60 this morning.

Mark O’Byrne, Executive Director at Gold & Silver investments lists weakness in the dollar, oil gains and safe-haven buying as contributing factors to gold’s significant gains in early morning trading, and these factors can be attributed to silver’s rise as well.

O’Byrne asserts safe-haven buying is the primary factor for precious metals gains as the U.S., Japan and countries across Europe come terms with the reality of recession. In defense, the nation’s central banks will most likely continue to cut interest rates and increase liquidity in the financial system, which will no doubt lead to currency devaluation.

“But”, said head dealer at Integrated Brokerage Services Frank McGhee, “even with all the money central banks have thrown at the financial system, it is not enough to stop systemic risk.” Investors are looking for “hard assets for hard times,” pointed out McGhee. Hence, the move toward gold and silver.

Many market analysts believe the dollar will continue to weaken over the long term, spurring further moves away from the dollar and into harder assets like gold and silver.  Over the past few months, precious metals prices have been suppressed by deleveraging, which analysts like O’Byrne believe has reached its end.

In the paper market, “hedge funds have been net sellers, and that has been keeping the price down,” said financial journalist Peter J. Cooper. “Now, hedge funds are coming to the end of their selling, and the change in direction for precious metals is likely to be dramatic. There is no doubt about the true level of demand for the tightly supplied physical precious metals market.”

Tony Baird, who founded the UK’s largest independent coin and bullion dealer, Baird and Co., in 1967, has described the last four months in precious metals as “the busiest I’ve ever known.” Since the collapse of the Lehman Brothers, Baird said “a massive movement of money out of banks and intro physical bullion” has occurred.

Once forced sales in the paper market come to an end, “the physical buyers will prevail and gold will take off. And so will silver,” said Baird.

Cooper believes there will be huge price increases from silver producers whose stocks have been deeply oversold.

First Majestic Silver Corp.

Last week, First Majestic Silver Corp. [TSX:FR] announced that October production rates had substantially increased over the average monthly production reported for the third quarter. First Majestic currently has three producing silver mines: La Parilla, San Martin and La Encantada. All three had significant increases in throughput last month.  The mills at each mine processed 25 per cent more ore in October compared with the third quarter monthly average (56,766 tonnes) for a combined total of 71, 172 tonnes.

The La Parilla mill has undergone improvements to increase its capacity from 800 to 840 tonnes per day (tpd).  The San Martin mill is also undergoing improvements to be completed by the end of this month, which will see capacity increased from 800 tpd to 1000 tpd.

The La Encantada mill has had several recent modifications as well that will increase mill capacity from 800 tpd to 1000 tpd. Construction of a 3,500 tpd cyanidation circuit is expected to be completed in April 2009.  The circuit will lead to further increased production at the mill.

First Majestic has also reported that its “direct sales of finished silver products continue to be very robust.” The silver producer currently sells about 5 per cent of its production in the form of 1, 2, 5, and 10 oz coins, 5 and 10 oz Ingots and 1 kilo bars containing 99.9 per cent pure silver. First Majestic expects sales to increase to 10 per cent of production by February.  Interested buyers can learn more about purchasing physical silver from First Majestic on the company’s web site: http://www.firstmajestic.com. Shares in First Majestic were up over 20 per cent to $1.59 on Monday.

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