Commodity Online
It is time investors look closely at the white metal and give it its rightful place as a safe haven. Some very significant aspects of Silver have come forth in these trying times.

As we mentioned in our earlier reports about Silver’s ability to race ahead Gold in a rally but drop faster than a brick when the market turns, losing more than it had gained and eventually losing much more than Gold. Its higher lows and lower highs have proven this time and again.

Especially after October, Silver has shown a rapid gain of almost 49 percent and hence being considered as a safe haven metal and less as an element of the industry.

ALSO: Why silver performs better than gold
             Like Gold, Silver ETFs to see big bull run
             Why gold & silver coins sales are surging in US
         
Silver prices are more than 40 percent below their high of $21.25/0z in March 2008, while Gold is only around 12 percent below its 2008 high. This gives much room for Silver to race ahead Gold in a good rally whenever there is one.

Silver production is also an important price driving factor as mine output falls on account of falling industrial demand, tightening supply and hence increasing prices.

The rise in silver prices has corresponded to investment interest in the newly established silver exchange traded fund (ETF). The ETF was established in April 2006 and was modeled after the gold ETF that was started in 2003.

Exports of silver rose dramatically in 2006 owing to movement of physical silver to the ETF inventory agency in London, United Kingdom. ETF inventories at the end of 2006 totaled 3,330 tons of silver and by the end of October 2007 had risen to 4,200 tons.

Silver is currently plagued with the problem of supply surplus and falling prices. Even if there are cutbacks in base metal mining, which will reduce the size of the surplus the total supply is going to have to be absorbed by investors if prices remain cheerful. Status of the ETF’s show that investors’ interest in Silver is still large.

And with the current economic condition, the constant crumbling of the financial markets and the heavy rescue packages that government’s are churning, it is highly unlikely that investors will think of riskier alternatives for sometime now.

Over the last 100 years the price of silver and the gold/silver price ratio has fluctuated greatly due to competing industrial and store of value demands. In 1980 the silver price rose to an all-time high of US$49.45 per troy ounce. By December 2001 the price had fallen to US$4.15 per ounce, and then it began to rise from 2006 to go above US$15.21 per ounce.

Like its big golden brother, the iShares Silver Shares ETF is now regularly making new all-time highs. Silver has added net gain to 700 tonnes so far in 2009. Grabbing exposure to silver stocks is generally difficult. But investors who want to put their money in silver should take a look at the iShares Silver Trust, which has been up 38.4% over the last 3 months and well above its 50- and 200-day moving averages.

According to bullion analyst Kevin Grewal, the growth of Silver ETFs is indicative of a bull market. “Overall, bullion has not made major moves, but gold, on the other hand has seen some sharp rises. Surprisingly, the major reason for this surge in gold is silver,” says Grewal adding: “These two precious metals have a rather distinct correlation. In a real true bull market the ratio of silver/gold falls and in a bear market the ratio increases.”

Grewal says last year, the silver-gold ratio was in the low 80s, and has dropped an astonishing 17.6% from its peak, to close at 69.5 late last week. Some experts believe that the ratio will get down to 40 and may even drop as low as 20 in the near future.

According to Grewal, this move in the sliver ratio illustrates that the sentiment toward the whole sector is changing. What is odd though, is that this rally seems only to be stirring up in the Western Hemisphere. India, the world’s largest consumer of gold is still standing on the sidelines and has yet to enter the market, contrary to the nation’s buying up of gold when it was trading at lows in the fall.

Post your comment  (0)

Connect:

Post to Twitter

Post to Facebook