Industrial Uses Gives Silver An Edge Over Gold

Over the years, there have been a lot of deliberations regarding the positive aspects of the yellow metal - gold. Although the price of gold has zoomed to record heights during the recent week giving rise to apprehensions of an imminent inflation, economic consultants are of the view that while chasing the yellow metal, investors should not close their eyes to the potentials of the yellow metal's less favored kith -silver.

A number of economic advisors are of the opinion that in the distant future, compared to gold, silver is likely to yield higher returns as it is not only valued as a precious metal, but has enough importance in industrial applications.

According to Peregrine Financial Group vice-president, Bob Tebbutt, people's disposition towards industrial commodities is becoming increasingly positive as a result of which industrial materials are becoming more popular with the investors. He further said that this was an indication of the fact that gradually silver is being preferred to gold.

Substantiating Bob Tebbutt's views, John Stephenson, a portfolio manager with First Asset Funds Inc., pointed out that presently industrial appliances, such as chemicals, batteries, electronics and medical instruments comprise nearly 50 per cent of the demand for silver. According to Stephenson, since the demands for these industrial commodities will only keep on increasing, there is little doubt that the demand for silver too would go up.

Besides, along with the decline in the supply of other industrial metals, availability of silver too has been hindered, as the resources of this precious metal are diminishing. While very few new mines are being opened, even most of the existing silver mines have been closed down as a result of the recent economic recession. To add to the problems, similar to the yellow metal, silver also has a propensity to gain from the panic over inflation that have become widespread these days owing to the extensive stimulus or incentive spending by the government.

The increasing demand coupled with shortage of availability of silver has resulted in decrease of the gold-silver ratio. In other words, the number of ounces of silver worth one ounce of gold has reduced substantially owing to the disparity between the demand and supply of silver during the past few months. During October 2008, the gold-silver ratio touched a new peak at 84:1 as more and more investors put their money in acquiring gold - a comparatively safe sanctuary for investors in times of harsh economic conditions like recession or war. However, the ratio has dropped to lower than 64:1 since October 2008 in spite of the fact that the recent perk up in the price of gold that touched a record height of US $1,100 for every ounce and even more.

Although the record price of silver has been US $50 for every ounce some time ago, presently the precious metal is selling at US $17.50 each ounce. According to the CEO of Maison Placements, an investment dealer located in Toronto, John Ing, prices of gold has already reached record heights, while silver has not. Hence, in all probability there is ample scope for silver being on the upside.

It is interesting to note that while John Ing envisages that the silver prices will go up to US $22 for every ounce in the near future, John Stephenson of First Asset Funds Inc., says that there is a possibility of silver prices rising to US $25 per ounce, especially because the prices of gold has not stopped after reaching a historic high, but is still on the rise. Stevenson is confident that without any exception, the price of silver will go up soon, if the gold prices continued to soar.

John Stephenson further said that considering the fact that price of silver has not gone up as steeply as gold and is doing business at quite a lot of multiple points lower than its historical mean over an extended period of time that has been around 56:1 and presently the gold-silver ratio stands at 64:1, it is a good occasion to purchase a quantity of silver and provide a stimulus for the prices of the metal go up. Speaking in the same vein, John Ing pointed out that purchasing silver bars now may prove to be a very smart venture. He, however, added that acquiring shares in silver companies would be even better as this would provide the investor with much more control and power.

In addition, John Stephenson also proposed the idea of buying stocks in companies that produce silver. However, he accepted the fact that there are actually a very small number of companies in the market that generate mainly silver, if not only silver.

Among the Canadian firms that mainly produce silver, generating over 50 per cent of this precious metal, are Pan American Silver Corp. (TSX:PAA), Silvercorp Metals Inc. (TSX:SVM) and Coeur d'Alene Mines Corp. (TSX:CDM). Stephenson further informed that firms like Silver Wheaton Corp. (TSX:SLW), do not own their personal mines, but instead make investments in the silver production of other companies. According to him, this saves such companies from undertaking additional operational hazards of running mines.

In the meantime, Peregrine Financial Group vice-president, Bob Tebbutt suggests the investors to purchase silver futures or any agreement that make it mandatory for the buyer to acquire the physical precious metal on a preset date and price in future.

To Top