Tucson-(Kitco News)-Silver could get a boost if the European sovereign debt issues leach into U.S. investments but the nagging possibility of a double-dip recession could dampen the metal's prospects, according to Philip Newman, research director of GFMS in London.

Newman, interviewed on the sidelines of the 34th International Precious Metals Institute Conference here, said Europe's sovereign debt crisis has benefitted the gold market more than other metals.

"We've seen investment in silver and the platinum group metals being quite weak," Newman said. He said at the moment there doesn't seem to be too much impact from Europe on silver but that could change.

"If we see some of these issues come over in the U.S., that would benefit the silver market and we may see silver investments pick up quite considerably."

The 2010 outlook for silver, however, is a bit cloudy, despite a good start. Newman said last year was a bad one for the industry. "We had one of the most significant drops we've ever had, a 21 percent decline in the global use of silver for industrial demand," he said.

This year has started "quite positively," he said, but noted the large pick-up was in part due to the re-stocking of the pipeline, which had become quite depleted last year.  "Although it is a large increase in the first six months, that is against a very weak 2009 start," he said. "That sort of flatters the performance."

The remainder of the year, however, is more uncertain. "As we move through the year we're concerned we could have a double-dip recession emerging," he said. "If that is the case, we'd have a bit of a slowdown towards the second half of this year."

Concerning gold, Newman said in reply to a question about whether gold is in a bubble that a bubble is hard to define. But he said investment is keeping gold where it is. ETFs are doing well and physical investment and other areas are keeping gold around record highs.

Gold jewelry demand has been depressed because of the recession of the last couple of years, Newman said. This year is better, he said, but emphasized it is up to investment "to keep prices where they are at these record highs."

Newman did say that gold jewelry recycling has done well in the U.S. and parts of western Europe, even though jewel fabrication is weak and consumption of fabricated jewelry has been subdued.

The question is, he said: "Is this going to continue and for how long?"

As for the PGMs, Newman said tremendous growth Chinese and Indian vehicle markets offset in part  the weaker US and European markets.

He said more growth in vehicle demand is expected in China. "Of course, if we start to see an end to the Chinese stimulus packages, which were so important last year in helping to drive the economy and the automobile market on the PGM side, we could see a bit of a slowdown," Newman said.

Chine is also one of the largest markets for platinum and palladium jewelry, he said, and that market will need to be watched closely.

"I think we're already seeing a bit of slowdown in that market this year," said Newman. "It is a price sensitive market, and with PGM prices quite high, you can see a bit of attrition there."

For more information on the IPMI visit www.ipmi.org

By Daniela Cambone: dcambone@kitco.com

Terry Wooten contributed to this story.