Sunday, February 1, 2009

The Current Price of Silver Is Extremely Low

Silver prices ounce dollarAs the current precious metals bullmarket continues and the dollar price of gold continues to skyrocket, silver metal prices will see even more dramatic gains that gold. Today, for the first time ever, the amount of silver available to investors is less than the amount of gold. One of the reasons for this is that most of the gold that is mined continues to exist, in the form of jewelry and money. Only around 11% is used for industrial and medical purposes. Silver, on the other hand, is used for industrial purposes in far higher ratios than gold is. That means that most of the silver that is mined is actually discarded as waste and usually not recovered.

Historically, the price ratio of gold to silver has always averaged 12:1, meaning that gold was 12 times as valuable as silver. The reason for this can be assumed to
be that, on average, the supply of silver was 12 times greater than the supply of gold. The free market always balances these things out naturally. But today, the amount of silver available to investors is far less than the amount of gold; the amount of silver being mined is far less than the amount of gold; and government reserves of silver are almost nonexistant compared to their reserves of gold.

So if gold is currently rarer than gold, why is the gold price higher? It's because everybody thinks it's supposed to be lower. People's perception of silver is that
it is the poor man's gold, a cheaper metal with less intrinsic value than gold. Because of that perception, people are quicker to put their money into gold as
an investment. Gold is glamorous. Gold signifies wealth. Silver seems mediocre. But these are mere perceptions, and once the market corrects the price of silver based
on the law of supply and demand, the price of silver will skyrocket even more than gold will.

Price of silver per onceThink of it this way. The historic average price ratio of gold to silver has always been 12:1, as I mentioned above. But the current ratio at the time of writing is about 73:1. That's despite silver being scarcer than it has ever been, scarcer than gold. Even if we are conservative and say that the price corrects itself to the 12:1 ratio, that is a huge gain in the silver price. And in all likelihood, silver will see far greater gains than that. Some even expect the price to match or surpass the price of gold.

I've been gradually increasing the amount of silver I buy because I think that only as the gold market price climbs very high will people start to realize the potential of silver to increase in value. Silver prices per ounce are currently very low, so the time to start buying is NOW.

1 comment:

Ben said...

Indeed. I'm totally taking advantage of the $13-14 range and I already have about 12 1 oz's. :D