The Silver Climate

For the last 7 years or more gold’s sidekick silver has not been a favourite for the average investor due to the fact that it has not been cheap relatively to gold for nearly 7 years, however the recent silver surge on the ETF platform has created a robust demand for silver indicating that silver will be riding the bull and outperform gold for the rest of the year.

There is however some considerations that must be taken into account before actually indulging in silver or silver related commodities, for instance mine production of the precious metal is most likely to drop in 2016 according to market watchers for the first time in more than 10 years and due to this the imbalances between demand and supply where demand is looking like it is going to outstrip supply for the 4th consecutive year as indicated by Standard Chartered PLC might push prices further up.

Most of the silver that is being mined is generally not extracted alone, it is usually extracted from the ground along with a diverse range of other minerals and the expected output cuts that are being scheduled by some of the bigger mining corporations is definitely going to hurt supplies of silver along with copper and zinc.

Everybody is well aware of what happens when demand exceeds supply and silver’s 10 % advance so far this year has been trailing behind gold’s 18 % leap as economies uncertainties and market reactions towards an impending global slowdown has been slowly channelling investors to safer havens and the 1:83 ratio between gold and silver is the highest since 2008 as investors were only able to buy 83 ounces of silver with an ounce of gold which is an indication that silver is actually relatively undervalued and prices have to be raised if at all the gap was to be narrowed.

The difference between gold and silver is that much of the silver demand stems from the industrial sector with a quarter of it directly from the electronics industry and silver’s correlation with the movement of industrial raw materials which include copper, zinc and lead is an element that cannot be overlooked. If we were to examine the London Metal Exchange index of the six dominant industry related metals, they have increased by about 14 % since hitting rock bottom in more than 6 years in January.

Logical estimation places silver at about $18 dollars per ounce by December 2017 which is approximately an 18 percent increase. Based on all these factors it certainly looks as if silver is bound to outperform gold and return to a ratio of 1:70. The gist of the entire scenario is that silver is currently grossly undervalued and if the global economy does not tumble over and raw commodities continue to improve their stand, silver will be the first to reach a decent equilibrium compared to the rest of the metal pantheon.

Leave a Reply

Your email address will not be published. Required fields are marked *