America's Silver Users Association is battling to stop the launch of a silver trading instrument by Barclays on the New York Stock Exchange, warning that it will cause a supply bottleneck and trigger a sharp spike in prices.
Their campaign has led to a flurry of excitement among silver buffs and commodity traders, fuelling speculation that the metal is poised for take-off.
The silver users fear that ordinary industry could face an acute shortage if the metal is diverted into investment.
The best conductor of electricity, silver is widely used for plasma screens, solar panels, window defoggers, car headlamps, mobile telephones, anti-freeze catalysts, fuel cells, mirrors, paints, dental alloys and photography, as well as jewellery.
Silver is even used as a salt to kill bacteria in wounds by breaking down the cell membranes.
In a letter to the US Securities and Exchange Commission, the silver users warned that there was too little metal being mined to meet the expected surge in investment demand.
It warned that Barclays' Exchange Traded Fund (ETF) for silver "would disrupt the market in the short term and may harm the market in the long term".
As investors bought the new ETF, the fund would have to match the amount by purchasing bars of actual silver for storage in warehouses.
ETFs offer ordinary investors and non-specialist funds an easy way to buy into commodities.
Gold EFTs launched recently are already worth $3.4billion and have taken some 250 tonnes off the market. While the gold market is big enough to absorb the demand, silver is not.
"A silver ETF would only exaggerate silver's illiquidity given the sheer volume of physical silver needed to be shipped and stored," said the letter.
SUA said the silver price jumped 30pc in a single month in 1998 when investor Warren Buffett bought an estimated 100m ounces.
The world's central banks have little silver left in their vaults to dampen speculative excess. The US government has sold off its strategic reserves over the last 60 years, disposing of its final 15m ounces from the US Defence National Stockpile Centre in 2000.
Washington now has to buy silver to mint its own commemorative coins.
By contrast, central banks are still major holders of gold. They have been selling up to 500 tonnes a year, acting as a constant - if diminishing - brake on the rise in price over recent years.
Ross Norman, director of TheBullionDesk.com, said the SEC would not agree lightly to a new fund that could disrupt industry. "Barclays is swimming through treacle to get this through the SEC."
"If approved, the ETF will allow a whole new audience to jump on the commodity bandwagon, and it could significantly boost silver prices. But silver can't get too far out of whack because traders play the ratio with other metals, so it corrects back," he said.
While gold recently touched an 18-year high, silver is still below its medium-term peak of $8.29 in April 2004 - a level that now offers major technical resistance. It was trading yesterday at $7.87.
Silver, a schizophrenic metal that can't make up its mind whether it is base and sometimes precious, has typically tracked gold in major booms, though with two to three times the leverage and volatility.
