SAN FRANCISCO (MarketWatch) — Silver’s more popular and volatile than ever, ready to finish the year with gains more than double those of gold, as the industrial staple wins more favor as an investment asset.

“The evidence is clear that investment, not industrial demand, is what is driving silver prices higher,” said Mark Thomas, chief investment strategist and author of SilverPriceAdvisor.com.

Why is gold selling off?

Last month, Thomson Reuters GFMS said investment demand will likely be the prime driver of the silver price this year.

The precious-metals consultancy forecast that implied net investment would jump 82 million ounces to 234 million in 2012 from 2011, even as demand for silver in industrial applications is expected to fall nearly 28 million ounces. Read more on the Thomson Reuters GFMS report.

Investment interest also shows in holdings of silver global exchange-traded products, which — at around 600 million ounces as of Nov. 23 — were close to an all-time high, according to ETF Securities.

“Current investors in silver now have survived a parabolic rise, a subsequent plunge in price and some extremely dramatic wide trading ranges,” said Thomas. That means “current owners of silver are very solid, committed, long-term investors.”

The iShares Silver Trust SLV, -2.51% has recovered from last year’s 11% drop and then some, tacking on nearly 19% year to date.

“Many analysts tout silver’s dual role as an industrial metal as an added advantage,” said Brien Lundin, author of the Silver Bullet Strategy, published by Gold Newsletter. However, “it is silver’s monetary utility that justifies its current valuations, and that is the only basis on which it should be analyzed in the current environment,” he said.

Advantages

Even with a backdrop of weak economic growth, silver can benefit from its dual roles.

“On the industrial side, the demand for silver is not just discretional,” said Julian Phillips, contributor and founder of SilverForecaster.com, meaning that it has uses in applications that are deemed necessary so it’s used even in the event of a recession. If there’s a “downturn or flat economy combined with uncertainty and a decaying monetary world, then investment demand is high,” said Phillips. Silver “wins both ways.”

Following recent declines, silver may be a bargain too.

“Silver is increasingly seen as an undervalued asset and its strong consolidation levels around $30-$33 are seen as a buying opportunity,” said Paul Mladjenovic, author of Precious Metals Investing for Dummies. “Silver is also getting more acknowledgment as being more scarce and more affordable than gold.”

On Thursday, silver futures US:SIH3 closed at $33.11 an ounce, down over 4% since the end of September, but up around 19% year to date. Gold US:GCG3, on the other hand, has gained nearly 9% for the year so far, following a Thursday close at $1,701.80.

“A continued weakening of the U.S. dollar or a geopolitical event could certainly propel silver higher, but a further rotation out of equities would also free up additional resources that could be invested into the precious metals market,” said Roy Friedman, executive vice president of business development for precious-metals dealer Dillon Gage Metals.

That “could help us break out of the current trading range, with prices moving back into the $40s and perhaps higher,” he said.

And silver, along with gold, benefits from being a monetary asset.

Silver and gold are both “the ultimate currencies,” said Gijsbert Groenewegen, a managing partner at Silver Arrow Capital Management. “They don’t have counter-party risk and can’t be manipulated by the politicians and printed ad infinitum by writing a nominal value on a piece of paper in order to give it value by decree.”

Risks and rewards

Before putting money in silver, investors need to keep a few things in mind.

“Silver usually climbs about twice as much as the price of gold during uptrends, and declines by about twice as much during downtrends,” said Steven Kaplan, a senior editor at TrueContrarian.com, a site that offers analysis on financial markets, adding that silver has a much smaller total market capitalization.

Gold and silver bars. Reuters

“Silver is for investors who are willing to take about twice the amount of risk as gold investors,” he said.

The white metal is also more ideal for investors who have a long investment time frame.

It’s a “better fit for investors who are fairly confident they will not need to liquidate the metal in less than a 24-month time period, given silver’s price volatility,” said Anthem Blanchard, chief executive officer of Blanchard Vault, a retail gold and silver dealer, adding that silver is the most volatile of all heavily-traded metals.

“Funds used to purchase silver are similar to funds placed in a CD in that investors should not expect to access the funds for 2-3 years,” he said.

If that’s not an option, then the “lack of volatility [in] gold’s versus silver’s price makes gold the safe way to go,” he said.