Wednesday, October 21, 2009

Silver Will Outperform Gold

As I previously posted, I was a little chagrined that gold had reached all time highs but silver has yet to approach it's all time highs, even though in my view, it's more important to society than gold in many ways.

Homework: why do you suppose silver has the highest number of short contracts of any commodity against it's yearly production even though it's one of the smallest markets on the COMEX?

If you can answer that, I'd be mightily impressed.

Silver has a lot of catching up to do and it's in this bloggers opinion, that one day, the price of silver will surpass the price of gold. Don't simply disagree because you an opinion, try and figure out why I believe that (hint: start by watching the videos on the right).

Now on to an article that inspired these thoughts today from Bloomberg...

Silver, ‘Bullion’s Bridesmaid,’ May Outpace Gold: Chart of Day
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By Kim Kyoungwha and Lee J. Miller

Oct. 20 (Bloomberg) -- Silver may outpace gold through mid- 2010 as a recovering global economy increases industrial demand, said Citigroup Inc.

The CHART OF THE DAY shows the ratio of gold to silver. An ounce of gold bought 59.4 ounces of silver on Oct. 14 when gold for immediate delivery jumped to a record $1,070.80 as investors sought an alternative to the weakening dollar and a hedge against inflation. That compares with 48.5 ounces when gold first exceeded $1,000 on March 13 last year and 43.6 on April 19, 2006, the lowest level in the past 10 years.

“Silver is set to benefit from stronger gold, but also the improving outlook for global industrial production,” said David Thurtell, a London-based analyst at Citigroup, in an interview. “I think the gold-to-silver ratio can get to the low 50s.”

When gold reached $1,000 for the first time, silver traded above $20 an ounce, compared with $17.82 now. Silver has already climbed 56 percent this year, more than double the 21 percent advance in gold. Gold is on course for its ninth straight annual gain while the U.S. Dollar Index, a gauge against six major currencies, has fallen 7.4 percent this year.

“The dollar’s decline has been pushing gold to a series of record highs,” Harjas Wadhwa, vice president for New Delhi- based AUM Capital Market Private Ltd., said. “If gold moves higher from here, you’d expect silver to outperform,” he said. “It has a lot of catching up to do” since “bullion’s bridesmaid” was more than $20 an ounce when gold first surpassed $1,000, he said in a report.

Industrial applications such as electrical switches and batteries accounted for 50.3 percent of silver demand in 2008, compared with 40 percent five years earlier and 51 percent in 2007, according to The Silver Institute. Use in jewelry comprised 18 percent, followed by photography with 12 percent. “Net investment” about doubled from 2007, to 5.7 percent of demand, according to the Washington D.C.-based institute. The world economy will expand 3.1 percent next year after shrinking 1.1 percent in 2009, the International Monetary Fund forecasts.

To contact the reporter on this story: Kyoungwha Kim in Singapore at Kkim19@bloomberg.netLee J. Miller in Bangkok at

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