SAN FRANCISCO (MarketWatch) — Silver’s free fall may be coming to an end.

After a nearly 9% dive in silver prices this month, investors should be able to breathe a sigh of relief as growth in industrial and investment demand gains pace, and calls of “oversold” conditions and “bargain” prices for the precious metal intensify.

“Silver is grossly oversold at current levels, more so than any time in the past five years,” said James Carrillo, senior portfolio adviser for precious-metals investment firm Swiss America Trading Corp.

Silver futures prices US:SIH3 have lost $2.65 an ounce, or 8.5%, this month, after closing at $28.70 Thursday on the Comex division of the New York Mercantile Exchange. Year to date, they’ve lost over 5%. That compares with gold’s US:GCJ3 month-to-date loss of around 5% and a nearly 6% decline for the year.

“Fundamentally, silver should be rising,” as physical demand remains strong, said Carrillo. “However, the technical side of the market is dictating direction currently.”

Before Thursday’s 0.3% gain, silver prices had fallen for five sessions in a row—dropping nearly 8% during that losing streak and breaking a key support level by settling below $30 on Feb. 15. Prices closed Wednesday at their lowest since Aug. 20. The iShares Silver Trust SLV, , which holds silver bullion, is down nearly 6% this year.

The absence of China last week due to the Lunar New Year celebrations “set the ball rolling and left the silver price at the mercy of the technical picture,” said Julian Phillips, a South Africa-based contributor to SilverForecaster.com. “I would expect a snapback just as surprising as the fall.”

Good signs

Analysts have been pointing out silver’s growing popularity as an investment asset, but many are starting to tout its prospects for use in industrial applications again, as sentiment over global economies improves. Read: Silver gains favor as an investment asset.

Jeffrey Wright, managing director at Global Hunter Securities (GHS), said he likes silver more than gold this year because of silver’s “industrial utility” and “true expansion” in industrial uses.

“The slide in silver could be coming to a close relative to gold because demand and usage fundamentals are expanding regardless of investment demand,” he said. “Demand in silver for industrial uses is driven by industrial activity in the U.S. and China.”

Last week, HSBC said it expects silver prices to rise to an average of $33 an ounce this year. It also predicted a significant recovery in 2013 industrial demand for silver based on forecasts for growing industrial production in some key silver-consuming economies. Read The Tell blog: HSBC polishes silver outlook, sees demand rise in 2013, 2014.

Of those key consumers, China is a standout when it comes to investment as well as industrial demand.

In a December 2012 report, the Silver Institute said China’s retail investment demand for silver is forecast to grow “robustly” in the short to medium term as more of the nation’s population gains access to physical silver. Read the Jan. 25 Commodities Corner: If China likes silver, maybe we should too.

“The Chinese have to hedge themselves against the continuous debasement” of their U.S. dollar reserves and “the opposite of the U.S. dollar is gold and silver,” said Gijsbert Groenewegen, a managing partner at Silver Arrow Capital Management.

Why is gold slumping again?

Despite that, silver prices have suffered along with gold since the start of the year — and even more so this month, as is usually the case for the white metal, whose smaller trading market makes it much more volatile than gold.

The “massive shorting in the futures market is warping supply and demand and at some point, the shorting will fail and silver will have a spectacular rise,” said Paul Mladjenovic, author of Precious Metals Investing for Dummies. “Whether this happens in a few months or a few years, that remains to be seen.”

Meanwhile, the lower silver prices go, “the more it will be a bargain going forward unless you can tell me that the debasement of the currencies or the threat of inflation will be no problem in the future,” Groenewegen said.

And economic signs are good.

China’s economy grew by 7.9% in the fourth quarter of last year, compared with a year earlier and manufacturing activity was strong in January. Read: China’s economy grows more than expected.Also see: China’s manufacturing improves, surveys show.

China’s economic and manufacturing growth, combined with the country’s automotive demand will “help silver in the medium term,” said Wright of GHS.

Price levels

That said, silver’s not necessarily headed for a significant rally right now.

Jeffrey Wright of Global Hunter Securities sees a $30 average for silver this year. Reuters

Technical signals point to silver “basing solidly” in the $26 to $28 range, said Mladjenovic. “Physical demand is very strong right now” so going forward, it is likely to “zigzag upward from here.”

Wright’s worst-case scenario for 2013 silver prices is $25 an ounce. He expects prices to average $30 this year.

Prices are “more likely to trade higher after rush-to-exits selling is over and fluctuate between $30-$35 for most of the year,” Wright said.

Silver “may or may not fall in the short term, but its long-term trajectory is definitely bullish,” said Mladjenovic.

Prices have climbed from around $5 in 2003 to near $30 an ounce so far, he said. “The big moves upward are yet to come.”