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Silver Opens 2013 With a Bang

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Surging markets tend to favor silver, but be wary of volatility.

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The battle for the crown in the precious metals world continues to heat up, as silver has gotten off to a strong start this year. With one month of 2013 officially in the books, silver has gained 3.4% (despite a sell-off toward the end of the month) compared to gold's -0.5% performance. This year will be especially interesting for these two metals as the fate of the global economy will likely have a big sway as to which hard assets finishes the year on top.

Precious Metals and the Economy

Despite being a precious metal, silver still carries a number of practical uses in the industrial world, while gold cannot say the same. Gold tends to outperform silver when markets are in a slump, as many investors view the yellow metal as a safe haven in times of turmoil. On the other hand, when markets begin to improve, gold recedes as investors gain a higher risk appetite. Surging markets tend to favor silver, as the metal tends to be in higher demand by the industrial world, allowing its price to rise.

Thus far in 2013, it has been all economy, as the SPDR S&P 500 ETF (NYSEARCA:SPY) has jumped a nice 5%, as it continues to test and break five-year highs. It is no surprise then to watch silver outdo its main competitor. In fact, the iShares Silver Trust (NYSEARCA:SLV) has seen a healthy $280 million in inflows this year, while the SPDR Gold Trust (NYSEARCA:GLD) surrendered over $1.2 billion in assets.

For as long as major benchmarks can maintain their impressive bull run, look for silver to do the same, albeit with a fair amount of volatility. Silver is known to exhibit hefty movements on a day-to-day basis as it is traded heavily by speculators. Those of you with long-term silver positions will need to be able to stomach the risk, but you could be handsomely rewarded when all is said and done. Should the economy begin to head south, keep a close eye on your positions, as gold may begin to present itself as a more favorable allocation.

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Editor's note: This article by Jared Cumans was originally published on Commodity HQ.
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