Hedge funds lay heavy bets on silver, gains spurred by QE3 could outpace gold

Hedge funds have placed major bets on silver due to expectations that the precious metal will outpace gold in the wake of expansionary measures by the world's central banks.

Bloomberg reports
that hedge funds have raised their net-long position to its highest levels since Feb 28, holding a total of 30,986 futures and options in the week ended 18 September.

Purchases of silver have leapt 10-fold since June, with investors buying 717.2 metric tons of the metal worth $797 million this quarter.

Bloomberg cites historic precedents indicating that gains in silver prices will outpace gold in the wake of the Federal Reserve's unveiling of a third round of quantitative easing, as well commitments from the EU and Japanese central banks to the pursuit of expansionary monetary policy in order to boost their ailing economies.

Silver gained 53% from December 2008 to March 2010 following the Federal Reserve's first round of quantitative easing and 24% following the second round in the period ending in June 2011, beating gains in gold prices two-fold and three-fold respectively.

Although it conventionally holds second place after gold as a tangible safe harbor investment, silver does possess one key advantage compared to the perennial favorite of those concerned about the inflationary abuse of fiat currency. Silver is extensively utilized in modern industry for everything from solar panels to medical science, with industrial applications accounting for over 50% of demand.

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Silver holdings near record high, hedge funds less bullish