When gold rallies, it often drags other precious metals along for the ride. Chief among them is silver. Gold & silver generally move in sync with each other and tend to move in the same direction. The relationship is such that there’s even an indicator that measures it – the gold/silver ratio. Many investors use the ratio to spot extremes in the pricing of either precious metal, and to spot trends, whether up or down. The ratio currently sits at approx. 80:1 and suggests that silver has some catching up to do.[The original article, as written by David Fessler (www.investmentu.com), is presented here in a slightly edited ([ ]) and abridged (…) format by the editorial team at munKNEE.com (Your Key to Making Money!) to ensure a fast and easy read.]
The Supply-Demand Equation Bodes Well for Rising Silver Prices
Silver has one advantage that gold doesn’t. Unlike gold, silver is used in more commercial and industrial applications. The list is extensive – electrical contacts, mirrors, jewelry, currency coins, photographic films and as a catalyst in many chemical reactions. However, silver production is dropping. Much of it comes as a by-product of other mining and refining, primarily lead and zinc but due to plummeting prices created by over-supply, many lead and zinc mines were mothballed back in 2008. As a result, silver production stalled with lead and zinc – and inventories are now at historic lows.
That’s the supply side of the equation but what about industrial demand? In short, it continues to rise. So with silver supplies lagging, silver prices are likely to head in only one direction: up.
Don’t Ignore Silver
There’s another big difference between gold and silver. Most fund managers won’t touch silver with a 10-foot pole. The reason? At around $9 billion, the size and liquidity of the silver market is roughly 20 times smaller than the gold market. However, it might be a mistake to ignore silver. With supplies continuing to fall and demand continuing to rise, the metal could very well make a very dramatic move to the upside – even if gold prices fall.
While gold’s meteoric rise still has room to run, silver’s run is yet to get started.