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Wednesday, August 3, 2011

Will Silver outshine Gold in near future?

(Published at daily news paper Assam Tribune on dated 25-04-2011)

On March, 2011 silver made a history by reaching a high of nearly $ 3875 an ounce. Was it because most of the world markets were going through dark days which translate into very good days for silver or was it because of more investors are beginning to recognize its worth because of the industrial uses. Many traders and investors forecast that “Silver will outperform gold in the near future?” This doesn’t mean that silver will be worth as much as gold, but it means that dollar-for-dollar and ounce-for-ounce, silver will see a great increase in price over at least the next two years than gold will. The performance of silver in 2010 was undeniable, showing a gain of 75 percent on spot price for the year and since September 2010 silver prices have broken above their consistent relationship to gold prices that have existed since 2003. 

You may be wondering why on earth silver is predicted to better than gold. There are several reasons for these predictions and here are just a few of them.  First- The demand for silver has been surpassing the supply for the past two decades due to new ways of used as technology develops. Second- The reserves of silver bullion in India, China, Russia and the United States have supplying the world but now those reserves are dwindling and third- Increasing the industrial uses for silver and making it a sound financial investment.   

Historically, the price of gold has almost always been greater than that of silver.  This is because silver is somewhere around ten to twenty times more plentiful in nature.   Does this mean that we should only hold gold?  I say no because of two reasons- First- you get more (metal) for your money holding silver and second- the price of silver has more room to appreciate, both because of its relative low price and because of the current relatively high silver: gold price ratio. 

Silver has three huge attributes or qualities that make it special and valuable, its versatility, its in-elasticity, and its duality. By versatility I mean that silver has many and varied important uses where it is the best solution. By in-elasticity I mean that more silver is not produced as price increases and less is not consumed as the price increases because there are no less-expensive alternatives. By duality I mean that silver has the potential to do well price-wise an industrial metal as well as money in and of itself; no matter the condition of the economy.

When the economy is good, silver will tend to outperform and when the economy is bad, gold will tend to outperform.  For example, gold was up nearly 250 percent in early 2008 but silver was up well over 300 percent at the same time from the beginning of 2002.  As the metals both declined throughout the remainder of 2008, silver fell farther than gold from peak to trough.  Silver fell nearly 60 percent while gold fell about half as much or 30 percent.  Now on the way back up silver is again leading. This occurs because silver is also an industrial metal besides being a monetary metal and, is in great demand when the economy is rolling along but less in demand when the economy is in recession.  Conversely, gold tends to be forgotten when times are good and remembered when times are bad.  Even though gold fell substantially during the financial meltdown of 2008, it fell less than did the stock indexes, silver, or oil. Now the question revolve around which is better to own gold and silver? Own both are claver idea but I believe that Silver will outperform gold in near future.