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Silver: The good, the bad and the opportunities it presents

by , 29 October 2014

If you've been watching the price of silver, it's not been doing well. The precious metal is struggling.

So what's going on with silver? Why is it struggling? Are there any chances of a recovery in its price? And should you invest in it?

Let's take a closer look…


The moves of the silver price are exaggerated moves of the gold price


When you look at the price of silver compared to the price of gold, there’s no disputing that it’s underperformed. You can see this in the chart below...





Silver tends to exaggerate the moves of gold, Sean Brodrick in Investment U explains. It outperforms on the way up and underperforms on the way down.

Yet over the past month, gold has started climbing. But silver hasn’t budged.

The reason for that is as well as being a precious metal, silver is also an industrial metal. Industrial use accounts for almost half of the use of silver.

As investors are fretting about the global economy, this isn’t good for the price of silver.

Yet the good news is that demand for silver is still there. Over the last week or so, China’s released some favourable data about its economic growth and industrial production.


The ins and outs of the gold-silver ratio


At the moment, the gold-silver ratio is sitting at over 70-to-1. This is much higher than its historical range of between 45-to-1 and 60-to-1.

Looking at this ratio, the good news is it’s getting near to a level where it usually rebounds from. You can see this on the chart below…




Once the ratio reaches 80-to-1, if history is anything to go by, there will be a pullback. This would lead to the gold-silver ratio coming back down.

What could make the ratio readjust? There are two probable outcomes…

  1. Precious metals drop in price, but gold will fall faster and harder than silver; or
  2. Precious metals will rise in price and silver will rise more.

It’s hard to say which option will happen, but option two is probably more likely.


Opportunities with silver


If you don’t mind taking on a bit of risk when you invest, you could look to silver miners. Many of them are trading at very cheap levels. But there’s always the possibility they could go lower.

Or you could opt for a silver exchange traded fund (ETF) like Global X Silver Miners on the New York Stock Exchange. There are no silver ETFs on the JSE.

So there you have it. Silver: The good, the bad and the opportunities its presents.

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Silver: The good, the bad and the opportunities it presents
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