In 2008, when the credit crisis instigated by The Fed was at its highest point, the price of silver dropped to $19.7 per ounce. At the time, everyone was bullish. In 2011, silver price went up as high as $48.70 per ounce. It was an approximately 530% increase at its peak within three years.
There are two main reasons why people invest in gold and silver. First, they may hope that the price of these precious metals will continue to increase and that they will gain some money. Second, they believe that there will be a decrease in the value of other investments. Every investor should have some silver in their portfolio. It could be a better investment than gold for a number of reasons.
Silver Price
At present, the price of an ounce of gold is 61.5 times higher than the price of one ounce of silver. However, gold reserves are outnumbered by silver reserves by a 10.6 factor. Therefore, this means that the gold to silver ratio should be more at 10:6:1 than 61:5:1. Gold is trading at $1,235 per ounce and this means that the price of silver is at $116. 50.
Silver Production
In 2012, the total production of gold from mining was 2,700 tons. On the other hand, the production of silver reached 24,400 tons, 9 times higher than that of gold. From this, it is evident that the gold-to-silver ratio should be closer to approximately 9:1. With the trading price of gold at $1,235 per ounce, this would mean that silver is trading at $137 per ounce.
Hoarding
The majority of gold that is produced is generally hoarded by the central banks of the world. Of all the gold that is produced, only roughly 400 tons is used for industrial production. However, on the other hand, more than half of the silver that is produced (which amounts to about 14,000 tons) is put to industrial use, making it a more in-demand metal than gold!
Additionally, it is an important element in the manufacture of photovoltaic cells used in solar panels. Due to the fact that the amount of silver that is used in these products is very small, it is not economical to recycle every piece of silver at the moment. Also, manufacturers of these products use a minute amount of silver per unit which is why they can put up with a substantial increase in the price of silver.
Paper Speculations
In a perfect world, the value of all global communities would increase and decrease based on supply and demand. However, this does not happen – a judicious example is the unfortunate experience of countries such as the Caribbean nations and the Philippines that relied on sugar during the early 1970s and 1980s. It can thus be safely quoted that even if there is a fairly low supply, there can be artificial depression of the price because of the fact that paper speculations over commodities are high in number.
This is happening with gold. Due to paper speculations over gold, the precious metal’s price is going through a depression. On the other hand, there is no such danger with silver. This is something you should keep in mind when you are trying to decide the value of gold vs. silver. The number of speculations on these precious metals has an impact on the future short term or midterm value of gold vs. silver.
Faster Growth in Percentage
Throughout history, silver has moved faster and farther than gold in terms of percentage. For example, since both precious metals’ peaks in 2011, silver is down more than 50%, while gold is down just a little over 35%. In addition to this, in the gold and silver bull markets in the 1970s, silver increased by 38 times while gold went up by just 25 times. Therefore, if you believe that the near future will see precious metals turning higher, it is highly likely that silver will outperform gold, its main nemesis.
Silver’s run up in price has been impressive and its upside may even be better than gold over the coming months and years. Like gold, it has had an incredible run from 2005 to 2011. Its value went from roughly $7 per troy ounce to $35 per ounce over that period of time. If you think of it in terms of percentage, that is even bigger than the gold move. Owning silver can be of sterling value against economic instability and it can also be of immense help in balancing your investment portfolio.