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Mankind's timeless fascination with silver stretches back 6,000 years. As early as 700 B.C., the Mesopotamian merchants used silver as a form of exchange. Later, many other civilizations also came to recognize the inherent value of silver as a trading metal.

The ancient Greeks minted the drachma, which contained 1/8th of an ounce of silver; and in Rome, the basic coin was the denarius, weighing 1/7th of an ounce. And let's not forget the English pound "sterling", originally denoting a specific weight of silver, which has come to mean excellence.

Although silver is relatively scarce, it is the most plentiful and least expensive of the precious metals. Besides signifying status and wealth, silver has been one of the most romantic and sought after of all the precious metals. From the beginning of time people have been enthralled by its beauty and drawn to remote areas of the world in search of this white, reflective metal. Silver has often been surrounded by mystery. The Incas of Peru called it "the tears of the moon" because they were awed by silver's strange gleam, and the Chinese believed that a silver locket hung around a child's neck would ward off evil spirits.

Although silver continued to be used for coinage in the United States until 1964, it lost its role as legal tender at the end of the silver standard when the Fourth Coinage Act was enacted by the United States Congress in 1873. Silver was de-monetized and the gold standard was introduced.

Following the lead of the United Kingdom, most major nations in the period also demonetized silver and moved to a gold standard, including Germany, France, Russia and Italy. By 1880 the only large countries still on the silver standard were India and China.

Silver, like other precious metals may be used as an investment, and today, millions of people throughout the world recognize silver's intrinsic value and have made it popular as an affordable investment. In the United States, Individual Retirement Account (IRA) participants can invest a portion of their investment portfolio in silver bullion coins and silver bullion bars provided that they are of a fineness equal to or exceeding 99.9 percent silver.

The price of silver has been notoriously volatile as it can fluctuate between industrial and store of value demands. At times this can cause wide ranging valuations in the market, creating volatility.

Like gold, silver is very much influenced by certain factors that include rising inflation, strong commodity prices, negative real interest rates, a weak US dollar, a bear market in stocks and heightened geopolitical tensions.

During the second half of the 1970s, investment demand for precious metals was supported by a very favorable set of economic circumstances that in some measure are present again today. They included all the aforementioned factors plus tensions in Iran and Afghanistan. This environment was highly positive for investment in silver and, particularly in the historically silver-friendly US market, private investor demand grew strongly. However, towards the end of the decade the peak in prices owed much to the Hunt brothers' and other speculators' aggressive purchases of silver.

Nelson Bunker Hunt and Herbert Hunt, the sons of Texas oil billionaire Haroldson Lafavette Hunt Jr., had for some time been attempting to corner the market in silver. In 1979 the price of silver jumped from $6/oz to an record all-time of high of over $50.00/oz. The brothers were estimated to hold one third of the entire world supply of silver (other than that held by governments. The situation was for other prospective purchasers of silver was so dire that the jeweller Tiffanys took out a full page ad in the New York Times, condemning the Hunt Brothers and stating We think it is unconscionable for anyone to hoard several billion, yes billion, dollars worth of silver and thus drive the price up so high that others must pay artificially high prices for articles made of silver.

Due to this aberration in with silver prices the US regulatory authorities imposed certain restrictions on speculative activity, and in early 1980 the exchange rules regarding leverage were changed, placing heavy restrictions on the purchase of commodities on margin. The Hunt brothers had borrowed heavily to finance their purchases, and they had invested heavily in futures contracts through the brokerage firm Bache Halsey Stuart Shields which then became Prudential-Bache Securities. When the price of silver dropped below their minimum margin requirement, they were issued a margin call for $100 million. The Hunts were unable to meet the margin call, and facing a potential $1.7 billion loss, the ensuing panic was felt in the financial markets in general, as well as commodities and futures. Many Government officials feared that if the Hunts were unable to meet their debts, some large Wall Street brokerage firms and banks might collapse. Silver Thursday was an event that occurred in silver futures on Thursday 27 March 1980. The price of silver dropped over 50% in just four days leading to panic on futures exchanges.

To save the situation, a consortium of US banks provided a $1.1 billion line of credit to the brothers which allowed them to pay Bache which, in turn, survived the ordeal. The U.S. Securities and Exchange Commission (SEC) later launched an investigation into the Hunt brothers, who had failed to disclose that they in fact held a 6.5% stake in Bache. and as the price began. This triggered a reversal of the price trend and later proved to be the beginning of a new era for silver investment.

The Hunts lost over a billion dollars through this incident but the family fortunes survived. They pledged most of their assets, including their stake in Placid Oil, as collateral for the rescue loan package they obtained. However, the value of their assets (mainly holdings in oil, sugar and real estate) declined steadily during the 1980s, and their estimated net wealth declined from $5billion in 1980 to less than $1billion in 1988.

In 1988 the brothers were found guilty on federal charges of conspiracy to corner the market in silver. They were ordered to pay $134million in compensation to a Peruvian mineral company that had lost money as a result of their actions. This forced the brothers to declare bankruptcy, in one of the biggest such filings in Texas history.

With the exception of a short-lived recovery in 1983 (largely fueled by speculators), investor interest declined over the rest of the 1980s, with the market falling into net dis-investment in 1989. Investors continued to supply the market with bullion throughout the 1990s, only returning to (initially very modest) positive net investment in 2001.

By the 1990s, investors' attitudes towards precious metals and commodities in general had become rather negative, only partly due to the disappointing price performance since their early-1980s peaks. In addition, the zero or, at best, very low yield on silver and gold contrasted with the positive interest rates available on major currencies and the bull market in stocks. Moreover, the collapse of the Soviet Union led to a considerable easing of political tensions, reducing the safe haven appeal of precious metals.

In 1997, Warren Buffet purchased 130 million troy ounces (4,000 metric tons) of silver at $4.41 per troy ounce (total value $572 million). Similar to gold, the silver price has more than trippled in value against the United States dollar since December 2001. On May 06, 2006, Buffett announced to shareholders that his company no longer held any silver.

Starting in the 2000s the central bankers of the world have continually worked to depress the silver price for fear of currency deflation with the mass printing of fiat currency. In actuality, the price of silver should be $25-30 per oz or more based on the classic gold/silver ratio. From September 2005 onwards, the price of silver has risen fairly steeply, being initially around $7 per troy ounce but reaching $14 per oz for the first time by late April 2006. The monthly average price of silver was $12.61 per troy ounce during April 2006. As of March 2008, it hovered around $20 per troy ounce. However, the price of silver plummeted 58% in October 2008, along with other metals and commodities, due to the effects of the financial credit crunch.

Apart from investor demand, demand for silver is built on three main pillars: industrial uses, photography and jewelry & silverware. Together, these three categories represent more than 95 percent of annual silver consumption.

Since the start of the bull market in 2003 the importance of investment demand has grown, with the spectacular success of Exchange Traded Funds (ETFs) the most visible sign of silver's growing appeal. Following the success of similar products linked to gold, April 28th 2006 saw the launch of the first ever silver ETF, which was followed by two additional products reaching the market at later stages. Silver ETFs are essentially securities that are listed on stock exchanges, which are fully backed by positions in allocated metal. Silver ETFs have both allowed small retail investors easy access to VAT-free silver and provided institutional players that are unable to invest directly in silver derivatives a means of gaining exposure to the price of the metal.

Silver's jump into double-digit price territory in 2006-09 has been assisted by the general boom in investor interest in commodities over the last three to four years and, specifically, the additional demand for the white metal created during the run-up to, launch and successful development of the first silver ETF.

A positive price trend has played a large part in drawing in more investment. The fact that, unlike gold, the all-time high for silver (1980's $50/oz) still remains a good way off has motivated certain buyers. In addition, silver's historically greater volatility than gold but close correlation to the yellow metal has recommended it to those who regard silver as a more leveraged alternative to gold. Silver's lower unit price also makes it a more affordable and hence attractive investment to some buyers of precious metals.

Besides these price-related issues, investors have also been motivated to buy silver due to wider and growing concerns regarding the value of the US dollar, inflation and the stability of the financial system. As regards the latter, the credit and banking crises have given a fresh impetus to investment demand in the last two years.

The growth in silver investment moreover has been buoyed by the more general flow of funds into commodities. Not only has this helped to reaffirm silver as an asset, silver can expect to benefit from fresh inflows into this asset class when economic conditions become more favorable. Investors in silver can usefully be divided into three broad groups: retail, institutional and high net worth.

Retail investors' strong interest in ETFs helps to explain, the growth in demand from this group for physical bullion. From 2003-07 net purchases of bars and coins rose somewhat but the volume of sales was, for instance, a good deal lower than the tremendous demand seen for such products in the late 1970s and early 1980s. In 2008 and early 2009, in contrast, there has been a step up in demand for physical bullion, this change mainly reflecting investors' growing concern over the stability of financial institutions. Buy-side interest for bars and coins remains most pronounced in the United States, although in the last couple of years demand has also grown significantly in Europe in spite of the adverse tax regime for silver in the EU.

For many investors in silver, mining stocks are the preferred - albeit indirect form of taking exposure to the metal. The advantage of this approach is the potential for a leveraged return on capital, the existence of dividends as well as, in the case of companies that are in part hedged or producing other metals besides silver, some level of protection, should prices retreat. Its main drawback is the exposure to company and sector risk, which can be linked to a range of drivers unrelated to the silver market, such as energy costs or geopolitical risk. Finally, although, as mentioned above, investing in companies that do not exclusively produce silver can provide protection against falling silver prices, it also introduces exposure to other metals' prices.

However, it would appear that the ETFs have absorbed some money that would otherwise have gone into stocks. On the other hand, the price gains achieved on the back of the ETFs' success have undoubtedly more than compensated for such effects.

With regard to the direct purchase and sale of silver bullion products, this varies considerably across different regions. This is largely due to the varying tax regimes that are in place in different countries. In much of Europe, for instance, high rates of value added tax have traditionally tended to deter investment in silver bullion.

Given its population and wealth, it should come as no surprise that the United States dominates physical investment in North America. And, as there is a relationship between silver and gold, it is certain that investor sentiment towards silver will remain positive over the rest of 2009, and well into 2010/2011.

According to a report by GFMS the upward move in gold and silver prices will continue in the medium term because the turmoil in financial markets and the global economy is far from nearing resolution. Specifically, they expect that the global economic slow down (recession in the case of the United States and other advanced economies) that is currently in place will result in fiscal and monetary policies that should be favorable for investment in precious metals. Government fiscal deficits are exploding and there are doubts as to how these can possibly be funded without recourse to the printing press, which will create the risk of much higher inflation in future. Moreover, short term interest rates have been reduced to extremely low levels, such that the 'cost of carry' for precious metals investments is close to zero. Given the scope for further falls in stock prices and, at some point, a major reversal in the government bond market, it is easy to see how this is all adds up to a powerful cocktail encouraging some portfolio allocations to precious metals, including silver.

Based on the strong link between gold and silver, GFMS are therefore confident that silver investment demand will remain positive through most of 2009, although there will be some swings in investors' positions.

Over the years there has been strong empirical evidence of the prices of gold and silver move closely together. Often over the years we have seen the price of silver track the price of gold, and there was a ratio between the prices of two metals. Although the ratio can vary, the gold/silver ratio is often analyzed by traders and investors and buyers. In 1792, the gold/silver ratio was fixed by law in the United States at 1:15, which meant that one troy ounce of gold would buy 15 troy ounces of silver; a ratio of 1:15.5 was enacted in France in 1803. The average gold/silver ratio during the 20th century, however, was 1:47.

And, because of its much lower price, the returns in silver will out-perform those in gold in percentage terms. There is no doubt the silver is another asset class that can be used to diversify your investments and hedge against inflation.