What are the key drivers for silver rally?

WASHINGTON (Scrap Monster): How far can silver go: To $40 per ounce or the historical $50 per ounce? Or is the rally in silver seen in 2011 going to be short-lived. Even as analysts are divided on the issue, the fundamentals do look pretty strong for the white metal.

1)Declining mine production

2)Robustness in silver jewelry demand
3) Healthy outlook for global silver industrial demand

4)safe haven appeal for precious metals
5)Falling Gold:Silver ratio

Holdings in the iShares Silver Trust, the largest silver exchange-traded fund (ETF) in the world, increased by 179 tonnes to 11,140 tonnes in the week to March 24. Gold holdings in ETFs fell over the same time period, according to Garry White and Rowena Mason in The Telegraph.

Silver is also an industrial metal, so demand for it is rising as the global economy recovers. Although it is no longer used much in photography, as the industry switches to digital applications, its use in electronics sectors, especially in semiconductor production, is increasing. There are also new applications for the metal emerging, such as silver oxide batteries, The Telegraph report said.

Meanwhile a report released on Monday by the Silver Institute forecasts a healthy outlook for global silver industrial demand, the largest component of annual silver fabrication demand. The report states that industrial uses of silver should rise sharply over the next five years to 666 million troy ounces (Moz) by 2015, representing 60 percent of total fabrication demand that year – a 36 percent increase over 2010's figure of 487 Moz.

Key findings from the report:

-The report maintains that stronger silver industrial demand in the U.S. and Asia will be a key factor in driving growth in the global total through 2015, and healthy developing country demand especially in markets such as China and India, will also be an important factor.

-Much of the forecast growth will come from established applications, such as silver's use in electrical contacts and in the photo-voltaic market.

-The technical proficiency of silver limits the ability to switch in favor of lower-cost alternatives, making the metal largely price inelastic.

-Emerging end-uses that benefit from silver's antibacterial properties or incorporate silver's electrical and thermal conductivity are expected to boost silver consumption through 2015.

"The report demonstrates how buoyant silver industrial demand is, not only because of the lack of substitution, but also because of the wide range of established and growing new uses that make up industrial demand," stated Michael DiRienzo, Executive Director of the Silver Institute. "This report maintains that we expect to see robust gains in industrial silver demand over the next five years, further emphasizing silver's essential role in industry," DiRienzo added.

Meanwhile silver prices rose to 6 percent $38.18 last week, the highest in 31 years and gold/silver ratio has reached its long term average of 40.