While gold continues to touch new highs, silver seems to be tired of tagging along with precious yellow metal. After outperforming gold in the initial six months of 2009, silver has taken a back-seat now.

Gains in silver have been capped due to movement in base metals and stalled ETF interest.

However, a recovery in economic activity is expected to fuel industrial activities, which, in turn, might support silver prices in the coming days, feel analysts. As per data provided by Kotak Commodity, silver (silver fix) has rallied 60% so far this year as against the 27% rally in gold. Copper, on the other hand, has jumped 112% so far this year.

Silver?s gain this year has narrowed the gold/silver ratio to 63 this month as against 84.5 during the same period last year. However, silver has increased only 5% since October while gold has surged almost 11% during the same period and has managed to scale newer highs. Copper has also witnessed a modest 6% rise during the period.

After hitting the then record level in March 2008, gold has held up well due to investment and safe haven buying interest. Though silver is supported by industrial demand, investment demand holds up gold prices, which silver lacks.

?Silver cannot catch up with gold due to the lack of investment demand. Gold will continue to have more momentum than silver. Where returns in gold are steady, with silver it is speculative. Gold every year has given more than 20% returns, which is an unlikely case for silver as it is more driven by base metals,? said Vibhu Ratandhara from Bonanza Commodity.

The sharp drop in silver prices last year and firmer gold prices can be attributed to higher investment interest in silver since December 2008.

However, the sharp run-up in prices seems to have stalled investment interest in past few months.

After hitting an all-time high of 8828.14 tonne in July end, silver holdings with IShares, world?s biggest silver backed ETF, fell as low as 8,594 tonne in early October before bouncing back to 8,744 levels in late October.

Depleting stocks continue to remain a matter of concern for silver and will support prices in the long term, say industry veterans.

The gap between mine production and fabrication demand is usually filled by above ground stocks which consists of government sales and supply from scrap.

Demand outstripping supply has led to a sharp decline in above ground stocks in the past few years, which has added to the concerns that silver stocks are depleting.

According to CPM Group, refined silver stocks have declined from around 2.2 billion ounces in 1990 to around 300 million ounces.

Overall, gold may continue to determine price direction of silver and it may continue to move up till gold rallies. ?Gold?s moving up would be positive for silver, however, if silver has to move up, it will have to do so in tandem with the base metals. We do not see silver breaking above a year?s high. Major factors impacting silver prices are seasonal buying till June, demand in the third quarter, silver ground stock and Chinese demand,? said Anand James of Geojit Comtrade.

The extended rally in base metals is expected to correct around 10-12% by the year-end on account of gold surging its all-time high and base metals declining, which could pressurise silver prices. Also, the correlation between gold and silver has weakened lately albeit it is still better than the correlation with copper, which has been weakening for the past few quarters. Copper and silver both are industrial metals; the former has risen sharply this year amid record imports from China earlier in the year.