Gold’s Ugly Sister Gets a Second Look

Silver’s recent gains have significantly outpaced gold’s; it has climbed around 30% since early February, compared to gold at nearly 17%. Still, some analysts think silver isn’t getting enough attention, and investors continue to view it as gold’ s ugly sister.

The average gold:silver ratio is 52, but currently sits around 63, indicating that silver has some catching up to do. That will likely happen in coming months and when it does, the silver price will jump.

Gold-oriented funds and ETFs have been the market’s best performers over the past month, fueled by troubles in the Eurozone. But demand for silver is growing too; the Canadian Mint and the US Mint are experiencing high demand for silver Eagles and silver Maple Leafs, and premiums for these coins are beginning to climb. And even though silver production is rising, investment demand, alongside industrial demand, is growing quickly, eliminating the surpluses expected from waning photographic applications.

It should be noted that silver is consumed and not recovered from these sources, so until newly mined silver supply grows in volume, silver demand will likely outpace production.

Other drivers for the silver bull include a criminal investigation into JPMorgan Chase’s activities in the silver market. Against that backdrop, the upside for silver could be as much as $100, and certainly more than $22, its 2008 high.

Silver investors need to have patience because when silver prices undergo normal corrections, it takes a few months for the bull run to resume; and when gold and silver prices correct together, silver tends to fall more than gold.

While silver has more uses than gold and is more fundamentally bullish, gold has a safe haven appeal that silver does not enjoy. Nevertheless, silver is an undervalued commodity and when the valuation catches up with fundamentals, prices will soar.

Article written by Myra Saefong

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