Silver is the second-largest of the precious metals market in terms of annual value of metal flowing through the market. In 2013, the dollar value of the silver market stood at over $5,100 billion.

Silver prices have declined by some 10 per cent this year given the metal’s correlation with gold. With a steadily-strengthening dollar and shrinking liquidity, it is no surprise that silver prices have taken a hit along with the yellow metal.

But does it mean investors have begun to abandon silver? Far from it, investment demand remains the single most important driver of silver prices, according to Silver Investment Demand report issued by Silver Institute, a non-profit international industry association.

Over the longer term, invest demand and silver prices are generally positively correlated. Investors are likely to increase their net silver purchases in the years ahead largely due to an ongoing weak global economy, for capital preservation and the white metal’s pedigree as a leading industrial metal, the report said, adding that investors may accumulate as much as one billion additional ounces of silver in various investment instruments over the next decade. This is on top of more than 860 million ounces purchased as an investment since 2006.

Highlighting how, like gold, silver too is largely perceived as a haven investment asset, a store of value, a portfolio diversifier and a hedge against inflation, the report points to an additional characteristic of the metal – its increasing use in industrial applications, especially in the semi-conductor industry. Not just that, the silver market, compared to the gold market, is a much more volatile and investors are able to receive a much bigger response in the price of silver than that of gold.

While silver prices could see additional downward pressure from the stale-bull investors selling for the remainder of 2014 and 2015, prices are not expected to decline significantly from the current levels between $18 and $19 an ounce, the report has concluded.

With anticipated cost reduction by primary silver mining companies, silver equities are likely to benefit.

With falling scrap sales at current prices, total supplies are unlikely to increase sharply. So, over the longer term, investors are likely to benefit from buying either silver or silver equities.

However, one of the concerns market participants express is the high amount of silver being held in physically-backed exchange-trade products, currently estimated at over 20,000 tonnes.

Outflow of the metal for whatever reason can create downside risk to prices.

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