This is the view of precious metals consultancy GFMS in its Interim Silver Market Review.

Silver prices had averaged $35.70 an ounce between January and mid-November and were expected to end the year having averaged $35.66 an ounce, 77% up year on year.

"The rally is expected to extend into next year, reaching an annual average in terms of the agency's base case, of over $45 in 2012," GFMS said.

According to the report, the main driver of the price remained investor demand, which had absorbed the substantial market surplus that had characterised the silver market this year.

The market surplus was calculated as the difference between mine production and scrap and fabrication demand, excluding coins.

While silver was primarily considered an industrial metal, its popularity among investors had climbed in recent months.

World investment - which included coins and medals - would reach a projected 278 million ounces in 2011, the second highest volume recorded in this data series.

"Although this represents a slight fall in ounces from 2010, it will set a new record in value terms. Further gains are projected for 2012," GFMS said.

It was investor activity which underpinned the metal's price moves this year.

The silver price, which traditionally tracked the gold price, rallied up to $50 in April before correcting sharply in May and again in late September.

GFMS said the main factors driving these price moves were those impacting on gold, namely the eurozone sovereign debt crisis, inflationary fears, loose monetary policies and a weak US dollar.

The report noted that total silver supply would remain stable in 2011 as growth in mine production offsets lower government sales and producer hedging.

"Total supply is set to rise next year, thanks mainly to a lift in mine supply," the consultancy said.

Mine production was seen growing 4% this year for the ninth year in a row while scrap supply was foreacst to grow by almost 10% and government sales should fall sharply.

On the demand side, fabrication demand was forecast to improve by 4% to a new record high with industrial demand increasing by the same quantum.

In the meantime, jewellery fabrication should edge slightly higher, silverware demand could fall by 8% and the use of sliver in photographic applications was seen falling some 10%.

Coin minting was expected to rise a significant 25% while producer hedging should tumble 30% this year.