Gains In Silver Would Be Durable, Exponential...

Why Silver will Always Beat Gold

The Gold-Silver Ratio

If you average out the price ratio between gold and silver throughout history, you land on a single magical proportion: 16 to 1. This chart is slightly outdated, but gets the point across nicely.

And even experts who do not subscribe to fixed pricing relationships generally agree that a price ratio of around 20 to 1 should be considered normal. What is not normal is the current ratio of — wait for it — 40 to 1!

We've been screaming about silver for a while (since $6 levels). Just last year, when silver was around $18, we noted that we could see a major squeeze. Today, with silver trading above $30, we're happy with the call.

To investors, this should mean two things:

1.) That silver is undervalued historically; and

3.) When combined with mad Federal Reserve printing, prices can go much higher, as we highlight in Silver Going to $100?

Any way you look at it, silver’s price cannot be predicted to drop in any of these scenarios.

And since these same experts are continuing to predict gold’s rise towards $2,000, a realistic target price for silver could be between $100-$175/ ounce range.

Silver’s Two Faces

Silver isn’t just a precious metal and (unofficial) currency; it is also one of our main industrial metals. One of the most conductive substances known to man, it’s used in everything from photography, to compact discs, to semi-conductors, to medical equipment. Basically, if something is high-tech, it contains silver.

Here's a breakdown of silver usage by sector:

The metal’s so heavily used, in fact, that for the last several decades, the world’s total silver supply has barely been able to keep up with demand — even though the 20^th century saw historic production increases. Demand ramped up in the last quarter of the 20^th century to the point where, for almost two decades (between 1998 and 2007), silver was in a fully-fledged global deficit.

It wasn’t until the worst economic disaster in three generations that supply finally dropped to below production levels.

However, with photography alone consuming 128 million ounces of silver annually as of 2007 (that’s more than 3 times the US’s total Silver reserve), and other industrial processes accounting for another 312 million ounces, the world’s total available silver (both produced and hypothetical) is steadily — and irretrievably — decreasing.  

So while gold is constantly being transferred based on price fluctuations and demand alone... silver, as an element, is actually vanishing.

The Broadest Options

With China and India buying up silver at unheard-of rates (Chinese silver demand tripled between 2004 and 2007), the industry has had no choice but to create new ways to own the metal. There’s never been so much variety in the way you can own silver as there is today.

For those looking for that wealth-saving hedge, there are a number of silver bullion producers that are minting high-quality, high-purity coins for minimal premiums. A perfect example of this is the 1 ounce Mexican Libertad.

Physical coins can be purchased at a number of dealers online, though we have found the cheapest prices through www.MarketDhara.com (no, we don't get paid for this link, it's just the best source we've found). However, for those interested in riding silver’s imminent rise will look for something less tangible, like silver ETFs, or, the most aggressive option: silver mining stocks.

And it’s that last option that I wanted to talk to you the most about.

Because with so many people piling into gold exploration companies for all of the reasons mentioned above, the case for silver is just that much stronger.

With the magic ratio currently at such a disparity — 40 to 1 vs. 16 to 1 — those moving into silver exploration today stand to make about three times what their counterparts can expect to cash in investing similarly in gold. Sounds nice, I know... And the fact is that investing in silver mining right now may not just be the most profitable angle to take with this most consumed of precious metals — but also the easiest.

 

Safe Harbor Statement:

Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.

 

Nothing in this article is, or should be construed as, investment advice.