Why silver might be a good buy at $20 an ounce

SAN FRANCISCO (July 27)   Silver didn’t quite turn out to be a bargain at around $30 an ounce early this year. At $20, however, it could be a steal, if you’re careful.

“Most indications are that silver is at or very near a bottom,” said Paul Mladjenovic, author of Precious Metals Investing for Dummies. The massive selling of silver futures contracts during the first half of this year “is very over-done and created some extraordinary bullish conditions.”

Silver futures /quotes/zigman/6975855 SIU3 -1.04%  closed Thursday at $20.15 an ounce, down almost 34% year to date. About a month ago on June 27, prices settled at $18.53, their lowest since late August 2010, according to FactSet data, tracking the most-active contracts.

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Silver’s declines have well outpaced that of gold’s /quotes/zigman/6585799 GCQ3 +0.37% steep drop of 21% year to date. Copper’s /quotes/zigman/678448 HGU3 -2.56%  down roughly 13%, platinum’s /quotes/zigman/10907220 PLV3 -1.17% lost almost 7% and palladium /quotes/zigman/10469735 PAU3 -2.15% has gained 5% this year.

“Silver is a more emotional market than gold, meaning it often has extreme upside and downside moves [more] than other metals,” said Alan Knuckman, chief market strategist at Trading Advantage, a market education and trading training firm. Silver prices were cut nearly in half from the highs around $35 in September to the recent low near $18.

“The rewards are sometimes greater in silver when you are [on] the right side,” said Knuckman.

Mladjenovic, meanwhile, referred to silver’s current prices as “artificially low” and said they’ll “push marginally productive silver mines to close and this will shrink supply” as demand for the metal continues to grow.

Even after the metal’s huge losses, however, not all analysts are quick to call a bottom for the white metal.

And they have good reason: Forecasts for an end to the silver selloff back in February turned out to be wrong, and prices instead leveled off before falling even more.

Blame that on silver’s usually high volatility and its split personality as an industrial and precious metal.

Bullied silver

Indeed, the silver market has been jostled around by demand indications from economic data around the world and pressured by moves in gold, which in itself has been shoved around by changing perceptions over the U.S. Federal Reserve’s monetary stimulus