By Geena Paul
MUMBAI: Why should silver play second fiddle to gold in a boom market? Even as the world is going ga-ga over the soaring bullion prices, silver is being treated like an outcast by investors across the globe despite a boom time in bullion market.

Will silver remain like Bhima in western India's Mahabharata state, where he was always overshadowed by younger brother Arjun?

In fact, silver is trading at a discount to gold these days, and some analysts have been debating whether the white metal is severely undervalued given its many industrial uses and its ability to double as a precious metal.

In fact, silver is overshadowed by Big Brother gold which started acting as a currency nowadays due to the safe haven rush by the investors.

At about $13 per ounce, silver is cheap — trading more than 70 times less than gold at $900 an ounce.

Still, the reference to cheap silver has been made before and investors, for the most part, have been staying away from silver because of concern about the fall in industrial demand and the more volatile nature of trading involved with the metal.

Those are red flags are for the near term. For the longer term, it could be a whole different story. Although silver is a precious metal with a monetary history, it is much more an industrial metal than gold so it’s perceived as having more risk and greater price volatility.

According to experts, the primary motivation in choosing or preferring gold over silver is risk avoidance.
Of late, gold has been showing signs of being an alternate currency, which has resulted in silver investors switching to gold.

In late February, gold prices climbed above $1,000 an ounce for the first time in nearly a year. But silver will never act as a currency.

Adding to silver’s downside is the collapse of industrial demand for silver. And that’s likely to get worse before it gets better.

In the bigger picture of the whole global economic downward spiral, silver has been a not-so-obvious victim.

History shows that the gold-to-silver ratio had been around 15 to 1 since 600 BC up until about the late 19th century when it climbed.

Geologically there are 15 parts of silver to every one part of gold in the earth’s crust so the ratio makes logical sense. The ratio reverted back to 15 to 1 as recently as 1980.

But now that ratio is more like 70 to 1. The discount of silver is the highest the market has seen of late.

As long as the world economy remains depressed and as long as inflation has not yet reappeared as a serious problem, gold is likely to outperform and the gold/silver ratio may move higher.

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