SAN FRANCISCO (MarketWatch) — Silver is ready to finish a dramatic year near the level it started, and some analysts predict big gains, and heavy volatility, for the white metal in 2012.

“Silver went parabolic when it broke above $29 back in March of this year,” said James Carrillo, senior portfolio adviser for Swiss America Trading Corporation. “It fulfilled its parabolic blow off at $50 shortly thereafter and is now testing the break point.”

Silver futures SI2H closed at almost $49 an ounce in late April. After a whopping 7% drop on Wednesday, they’re trading back below $30. Read more on gold and silver futures.

“In the latter half of the year, panic selling at both the personal level and institutional level brought silver down as investors had increased anxiety over world economic events,” said Paul Mladjenovic, author of “Precious Metals Investing for Dummies.”

The white metal hasn’t held up as well as gold because silver’s dual nature kicks in, he said. “Since silver is also an industrial metal and silver is a smaller market, panic selling has a more pronounced effect and the moves are more violent.”

“When people need money to cover margin increases, debt or other liability, they will sell and silver was part of this dynamic,” said Mladjenovic. But “nothing changed in the fundamentals for silver — they, in fact, keep getting better.”

Gold tumbles on euro cash concerns

Futures prices for gold are poised to end the year with a gain of around 11%, while silver’s trading 5% lower — which would be its smallest year-on-year decline since 2001, according to data from FactSet Research. Starting in 2002, silver had gained every year except 2008.

If prices hold above $28, silver may “resume its upward march next year,” said Carrillo.

“I would be a buyer of physical gold and silver at these levels, with gold being massively supported at $1,500 and silver at $28,” he said.

Bargain buying

Still, investors may need a little more convincing than usual these days regarding the outlook for silver. Read about Wednesday’s metals plunge.

Silver futures lost 7.4% on Wednesday, as gold futures GC2G fell nearly 5%. Month to date, silver has already dropped 11%.

“This week’s sharp declines in silver prices have generally washed out the speculative long positions,” said Carrillo. “The damage to the long term trend is now clearly visible, although the market is now grossly oversold.”

Should silver snap back in the short term, however, “as should be expected, and it closes the month of December above the $31 level, it should be viewed as a major buying opportunity,” he said.

On the other hand, if prices close below $31 at month end, “approach silver cautiously in the near term since a fall below that level “violates the long term trend and major support won’t appear until nearing the $20 level,” he said.

But while some focus on silver price levels for outlook guidance, others look toward the metal’s past actions.

Colin Hayward, who’s been a precious metals investor for more than 30 years, said the odds greatly favor silver finding a bottom in the short term, within the next one month to three months, considering the “extreme pessimism of silver bugs today.” Silver will then begin a run similar to what occurred after the 2008 “correction.”

“ ‘Buying silver under $30 today is like buying it at $5 ten years ago.’ ” — Colin Hayward, Gearology

When the commodities sector bottomed in 2008, silver bottomed around $9 and then marched all the way to $49 over the next 31 months, representing a rise of over 5.5 times — “a bull market advance if ever there was one,” he said, adding that gold’s advance was about 2.8 times or around half that of silver’s.

Silver is a bargain below $30, said Hayward, who’s also president of Gearology, which sells gold- and silver-themed consumer products. “Buying silver under $30 today is like buying it at $5 ten years ago.”’

‘Kissing cousins’

Still, investors shouldn’t expect a straight climb in silver. It’s still as volatile as ever and its moves will continue to be closely tied to gold.

John O’Donnell, chief knowledge officer for Online Trading Academy, said the “global deflation forces” are cause for silver’s price weakness and he expects silver to decline to $26-$27 before it finds any substantial price support.

And looking further ahead, by the fourth quarter of next year, he expects a return to the $35 price level, and then more selling pressure.

Peter Grandich, editor of The Grandich Letter, meanwhile, turned bearish on silver when it traded at the $50 level this year. Read about the mania in silver earlier this year.

Even so, Grandich expects both gold and silver to have at least double-digit gains in 2012, with gold likely to be the better performer.

“Silver continues to be more a base metal than precious [metal], but because of its ‘kissing cousin’ relationship with gold, it shall ride gold’s coattails and occasionally lead the way,” he said.

Others were even more upbeat.

With silver oversold during the second half of 2011, Mladjenovic expects to see a strong rebound in the metal, which could take out $50 during the first half of 2012 and during the rest of the next year, see support at that level and challenge the $60 level by the fall.

“Demand for physical silver is relentless as individual buyers across the globe and industrial buyers in Asia continue taking advantage of silver’s relatively low price,” said Mladjenovic, who believes this “will overcome the paper market’s current pullback.”

“If demand changes or if the manipulation lawsuit is resolved (or both), you could see silver in the $75-$100 range,” he said, referring to the ongoing Commodity Futures Trading Commission investigation of possible manipulation in silver markets.

Silver vs. gold

But both gold and silver each have their own great potential to see higher prices in the new year.

“Supply constraints, permitting challenges, increasing costs, lack of talented geologists and engineers, and costs of building a mine that have escalated over the last 10 years are all factors that should keep gold and silver prices high,” said Malcolm Gissen, co-manager of the Encompass Fund ENCPX

He thinks silver and gold prices will rise in 2012 as economies in China and India recover, with a better quality of life likely leading to more purchases of gold and silver.

As for the better pick, Edmond Bugos, director of mining finance at Strategic Metals Research & Capital, would choose silver.

He doesn’t expect the European Union will collapse in the short term. German Chancellor Angela Merkel’s government will get its way on the fiscal side and give the European Central Bank a “green light” so the economic outlook will improve for a time, and investors could start buying riskier assets again, he said.

A silver trader weighs his silver ornaments inside his shop in the western Indian city of Ahmedabad April 27, 2011. Reuters

Bugos also likes silver because Sprott Asset Management recently filed a shelf prospectus for the issue of $1.5 billion worth of units for the Sprott Physical Silver Trust PSLV, -4.06% . That could provide a hefty boost to silver demand and prices.

“That doesn’t mean Sprott’s Chief Executive Offer Eric Sprott will raise this capital, but “it puts all the legalities in place so that if he decides to do the issue, it can happen overnight,” said Bugos.

Terry Hanlon, president of Dillon Gage Metals, on the other hand, would choose gold over silver.

Gold’s long term prospects remain strong as demand should further rise, while growth in world supplies remain limited,” he said. “Continued uncertainty about the U.S., European and other economies will clearly keep investors interested in precious metals in 2012” and gold could reach $2,000 next year.

Still, Hanlon said investors should give silver, and platinum, a look as well, because of the industrial components and jewelry and investment aspects of demand for those metals.