Silver: a better bet than gold?
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Silver has hovered around the $7 an ounce mark for the past six months. But the uptrend of the past two years looks far from over. Demand has exceeded mined supply for the past 16 years. Since the late 1990s, the gap has been plugged by stockpiles held by the Chinese central bank, which are now widely thought to be close to depletion. Boosting supplies rapidly won’t be easy, as there are few primary silver mines in existence – silver is largely a by-product of base-metal mining.
A slide in demand for silver, owing to the advent of digital photography, should be offset by the need for silver in other industrial applications as China and India improve their standard of living. Silver is used in fields from medicine to computer technology, and a rising price shouldn’t choke off demand, as the metal rarely comprises a large proportion of the end product’s cost.
Another reason to like silver is that it looks undervalued compared to gold. As Handelsblatt points out, gold now buys 63 ounces of silver; during the last precious-metals boom in the early 1980s, when both metals were peaking, it bought 17. So silver has some catching up to do.
That’s putting it mildly, says independent silver analyst Ted Butler. Consider that silver is actually rarer than gold – there is less of it above ground, and because silver is used as an industrial commodity, it is barely recoverable, unlike gold.
So silver is likely to become even rarer as stockpiles deplete. Yet it seems that nobody knows this: gold is currently priced as if it were the rarer metal. “That should get your juices flowing”.
Recommended further reading:
If you are new to investing in silver, see our guides to investing in silver and silver ETFs. Or go to our section in investing in gold, silver and precious metals for a full list of articles.
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