UBS Calls For $50 Silver, Here's How To Play It

This morning, UBS came out and raised its three month price target on silver from $30 to $50, a near 60% jump as inflation worries persist, and economic growth slows down around the world. Courtesy of

UBS said that investors are not going to short gold for fear they could get hurt badly, as gold continues to march towards $2,000 an ounce. Instead, they will buy silver, which many see as undervalued compared to gold. Silver came close to hitting $50 an ounce back in April, before falling sharply, and then beginning the rebound we have seen in recent weeks. If you factor in inflation, silver is nowhere near its high, which would be $130 per ounce, so UBS believes there is plenty of room to run. If you believe that the Federal Reserve and Ben Bernanke are going to announce something this Friday at

then gold and silver are likely going to be the biggest beneficiaries, as "inflationistas" will rush head over heels into the precious metals. Additionally, the fall and winter months are the best times to hold both metals, due to buying for the holidays, as well as increased industrial production for the Southern hemisphere. We have seen calls for higher silver prices in recent months. Citi

and called for $100 silver over the long term. “If the final rally in the last bull market repeated then we can expect $100 over the long term,” said Tom Fitzpatrick and two other analysts in a research note. “While the high so far this year was at the same level as the peak in January 1980, we are not convinced that the long-term trend is over yet.” “The move down from the April high this year has come to an end and the double bottom is a good platform for a turn back up,” the analysts said in the report. According to Citigroup, the silver bull market started in November 2001, and rose 5.8 times through March 2008, before falling 60%. With UBS saying $50 silver is imminent in the next few months, we could see an influx into silver, potentially pushing it even higher, as money goes where money is treated best. In a recent interview, Silver Wheaton's

CEO Randy V.J. Smallwood said he sees

in the next few years. According to UBS, silver, like gold, has no counterparty liability or risk, and there is minimal coverage of silver in the media, which means the price action is more likely to act on fundamentals, as opposed to gold. If silver gets to $50 an ounce as UBS predicts, there is the likelihood that silver will be subjected to COMEX margin hikes, leading to a small drop in the price of silver. With demand in China continuing to stay strong, this could just be a short-term blip in the road before moving sharply higher. Silver levels at the COMEX continue to be at record low levels, and if there is a move past $50 an ounce, there could be a massive short squeeze, thus driving prices higher, like we saw late in 2010, and early 2011. Here is how traders should play $50 silver:

Traders who believe that silver is likely going to head towards $50 an ounce and higher might want to consider the following trades:

Traders who believe that silver does not hit $50 an ounce may consider alternate positions: