Silver Near a 31-Year High

Back in the late 1970s, the Hunt brothers from Texas tried to corner the silver market. That drove prices to $48 an ounce. Now, 31 years later, silver is shooting higher again. The March silver futures contract closed at $32.296 per ounce, up 72 cents.

Since gold is expensive, investors are turning to silver to hedge against inflation. Many fear that the Federal Reserve will not be able to control the spike in commodity prices. The Fed is buying $600 billion of treasuries and keeping interest rates near zero.

Silver is an industrial metal as well as a precious metal. With industrial production picking up, silver is more in demand. It is used in a host of products, mainly in electronics.

Some miners are hedging their silver production. They are selling forward contracts against their estimated production. The Commodity Futures Commission keeps a record of these commercial transactions. For the week ending February 15, commercial short positions totaled 50,796 lots, up from 44,340 at the start of the month.

For example, Boliden, a silver miner, has hedged 2.23 million ounces of it total 6.78 million ounces through 2013. In other words, they sold futures contracts against their physical silver. Hedging becomes a bit tricky in these fast moving markets. Barrick Gold (ABX) got caught when gold started moving sharply higher and had to unwind its hedges in 2009 and 2010.