Silver has been a precious element for 6,000 years. First used as a currency in 700 B.C. it has had a role as a trading metal in nearly every ancient and modern culture. Today, its intrinsic value as an investment persists, but it is also now widely used for industrial purposes (50% of demand), jewellery fabrication (19%) and coins and bars (25%). Starting the year at US$14.00/oz., silver was US$20.14/oz. in London on July 15, a 44% gain, and a price last seen in August 2014. Silver has declined, however, each year since 2011, averaging US$15.68/oz. in 2015 and US$19.08/oz. in 2014. By comparison, gold, at US$1,327/oz. last Friday, has gained 23% in 2016. Mined silver supply in 2015 was 0.887 billion oz; scrap provided 0.146 billion oz.; once net hedging supply is included, the total supply was 1.04 billion oz. Last year production from primary silver mines was 30% of global mine supply.The rest was a by-product of gold, lead/zinc and copper mining. Over the last 10 years, mine supply has grown by 38%. Physical demand has grown 25%, with scrap availability and annual supply deficits making up the difference. Physical demand in 2015 was 1.17 billion oz., including 0.227 billion oz. for jewellery, 0.292 billion oz. for coins and bars, 0.063 billion oz. for silverware and 0.589 billion oz. for industrial uses; with a net deficit (after ETP and exchange inventory) of 112.5 million oz. GFMS experts are not alone in predicting a rosy outlook for the silver price. Analysts with Bank of America Merrill Lynch said silver's fundamentals look the strongest in years, thanks to declining mine output growth and rising physical demand. "In an environment of rising event risk, sub-zero interest rates and now the potential of rising inflation following the recent jump in food and energy, gold and silver should continue to prosper," says Ole Hansen, Head of Commodity Strategy at Saxo Bank. Today the gold:silver ratio is 66:1 with gold at US$1,327/oz. and silver at US$20.14/oz. Since silver reached its nominal high in 1984 the gold:silver ratio had held fairly steady at 45:1; either gold will have to fall or silver top US$29/oz. to return to 45:1. The 2016 silver price surge reverses the continuation of losses since 2011, but history shows that investors hoping to board the bandwagon should be cautious. Since the UK’s Brexit vote, silver prices have climbed dramatically, proportionately out-stripping gains made by gold. Despite the recent rally, silver remains about 41% of its April 2011 peak of US$48.70/oz. When compared with its ratio to gold, this suggests its price could run further. Silver's 44% price jump in 2016 is difficult to justify in economic terms, meaning buyers should be aware of erratic movements. "Silver tends to move erratically – it's been between US$7/oz. and $50/oz. in the last ten years," Macquarie analyst Matthew Turner said. "It was quite weak at the end of May and it's hard to say fundamentals have changed much since then." "There are people who love to trade silver in the very short term who were lured back into the market by these kinds of price moves," says Julius Baer analyst Carsten Menke. "The issue with silver is that the long term doesn't look very compelling." Overall, as long as silver keeps its appeal as both a commodity and a play on gold, it has a chance to build on gains. But those looking to capitalise on this need to be prepared for a bumpy ride. "Silver is not for children," one trader said. "You can get in now, and see US$18 tomorrow. So, as long as you're aware, proceed with caution." (Written by Peter Jones, Executive Vice President of Century Global Commodities Corporation)