While its flashier cousin gold gets all the attention, silver has quietly been providing many of the same benefits for investors who want to keep a percentage of their wealth in hard assets — at a fraction of the cost. Silver started this week higher on the five-day chart but slightly lower on the month, starting the week off at $19.56, up $0.12 in early trading.
The current price action of silver is something any serious investor would pay attention to, because silver hasn’t seen these prices since 2010. Imagine being able to dial the calendar back nearly five years on an investment and get a “do over”; that’s exactly what the silver market has provided for investors.
As with any commodity, pricing is relative. One of the ways to track how gold is doing relative to other investments is the Dow/Gold Ratio. Historically, gold and the Dow have a stable relationship at around 10. Lately the ratio has been 12.6, which shows us what we see out the window, that the stock market is currently in favor, and investors are driving the price of the Dow up relative to gold.
For silver, we compare it to gold by tracking the number of ounces of silver it takes to buy an ounce of gold; this is the Silver/Gold Ratio. For the last few years, silver has stayed fairly comfortable in the range of 48–56; but lately that ratio slipped to 66.9, which means silver has taken a harder hit from the bear market than gold. This is an indicator that silver has greater potential to spring forward when the inevitable correction takes place.
Another aspect of silver that’s frequently overlooked is its industrial uses. The only industry that uses a lot of gold is fashion/jewelry, but silver has many industrial uses. One of the biggest industrial uses of silver historically has been photographic film. The switch to digital imaging left a temporary supply bump in the market, and silver prices should have collapsed. Yet silver prices continued to cling stubbornly to the $20 an ounce range, and that’s because other industries have stepped in to siphon off some of that excess as the demand for industrial silver in film making processes trails off.
Silver has its own fans in the jewelry industry; mixed with 7.5% copper, it’s used to make sterling silver, and is frequently used as a plating on less expensive jewelry. But the jewelry industry is facing competition from a whole new set of industrial processes.
Since silver doesn’t corrode and is highly ductile, high-tech industries such as consumer electronics and solar power have posted a big increases in demand for high quality silver solder in electrical applications. The shiny metal is also used as a catalyst in the making of many types of plastic.
Perhaps you’ve heard stories about Romans using silver coins in water and wine casks to keep their water supplies fresh. The antibacterial and anti-fungal attributes of silver have been validated by science, and one of the bigger new players in the demand for industrial silver is medicine. Medical science is turning to silver for antibacterial creams, bandages, and surgical clothing, where silver keeps germs from being transferred from one patient to another, and silver threads woven into surgical fabrics help dissipate any static charge that builds up while working with sensitive electronic equipment, like pacemakers.
Now Is the Time to Buy
When the pent up industrial demand for silver finally works through the backlog in supply, we could see silver prices spike sharply higher. We may easily see Silver/Gold Ratios in the 20s or even teens. That’s why right now is such a sterling opportunity for precious metals investors. High quality bullion products like Silver Eagles and Silver Maple Leafs are a bargain at these prices. If you’re doing what you should, and are keeping a fixed percentage of your wealth in precious metals, by all means split your regular buys between gold and silver.
The market doesn’t present such clear opportunities very often and vendors are ready to deal. Now’s your time to be stacking silver.