The price of silver reached a new high on Tuesday 5th April as it crossed $39, a gain of 27% for the year-to-date, yet many economists are now starting to question how much further it can go.

The fundamentals are certainly strong, a drop in mining production and a recovering global economy have led to a rise in demand for the precious metal. And investors remain keen to avoid devaluing fiat currencies in favour of commodities with demand for silver ETF’s rising 2% last week alone.  However the fact that investors continue to buy ETF’s means that supply is taken out of the market and the price rises begin to exhibit a bubble mentality.

Many people remain bullish on silver arguing that historically the gold/silver ratio has settled around 16:1, meaning that 1 ounce of gold has the same purchasing power as 16 ounces of silver. However the last time the ratio reached 16:1 was during the energy crisis in the 1980’s. In fact the long-term average stands at around 40:1 meaning that silver, at today’s ratio of 37:1, could be about right. Many analysts did not expect the ratio to drop below 40:1 so quickly leaving some to argue the price may be ahead of itself.

Plus there are wider economic factors that could dampen silver’s meteoric rise, a sudden resolution in the Middle East or a strengthening US Dollar would hinder further gains. There has certainly been some brightening in the US economic data of late but whether it will be sustainable remains to be seen.

What remains clear is that after such a strong bull run in the silver market, any correction would come hard and fast so it may be wise to sit on the sidelines and remain cautious in the short term.

However, with the US continuing to struggle under the weight of its own debt, policy makers may be forced to accept inflation as a way to ease the burden leading to a further devaluation of the dollar. Therefore silver remains an attractive option over the long term and will continue to be seen as a safe haven for many investors.