by Lobo Tiggre<\/p>\n\n\n\n
Monday April 22, 2019 15:57<\/strong><\/p>\n\n\n\n Kitco<\/strong> |<\/b><\/span><\/font> Opinions, Ideas and Markets Talk<\/p>\n\n\n\n Silver bulls like to point out that silver prices are historically out of whack. As of last night\u2019s close, you could buy 85.3 ounces of silver with one ounce of gold. Until recent years, the gold-silver ratio was in the range of 50\u201360:1, making silver look cheap and oversold.<\/p>\n\n\n\n Adding insult to injury, the naturally occurring ratio in the earth\u2019s crust is said to be 17\u201319 ounces of silver for every ounce of gold. Romans used a ratio of 12:1. US law originally set the ratio in US coinage at 15:1. Interestingly enough, the latest gold and silver global reserve figures I could find clocked in at about 19:1.<\/p>\n\n\n\n With gold at $1,275, the price of an ounce of silver should therefore be at least $21.25 (60:1)\u2026 or better still, $25.50 (50:1). And by all rights, it should really be closer to $70.83 (18:1).<\/p>\n\n\n\n Armed with these numbers, many silver bulls argue that silver prices must rise. Their current oversold state is simply unnatural, and it can\u2019t last.<\/p>\n\n\n\n Several things stand out for me on this chart:<\/strong><\/p>\n\n\n\n This last point is particularly interesting, given that there are more and more industrial uses of silver every year. We know, for example, that even with reduced subsidies, solar cell production continues growing, and it uses a lot of silver. Despite this, silver prices are down\u2014and there\u2019s nothing on the chart that tells us this is about to change.<\/p>\n\n\n\n Why? What\u2019s \u201cwrong\u201d with silver?<\/strong><\/p>\n\n\n\n Nothing.<\/strong><\/p>\n\n\n\n Silver is a precious metal traded by investors, <\/strong>but it\u2019s also an industrial commodity consumed by many businesses. In a decelerating global economy, it makes sense for silver prices to lag increasingly below gold\u2019s.<\/p>\n\n\n\n It\u2019s also important to remember that silver is produced largely as a byproduct of copper, lead, and zinc mines. The prices of all those metals are doing relatively well, which tends to boost the supply of silver whether or not there\u2019s enough demand for it. Zinc in particular has done well over the last five years. It\u2019s on a tear again this quarter.<\/p>\n\n\n\n I also think that the advent of digital gold, gold pools, gold ETFs, and other products have changed the game between gold and silver. People who in the past didn\u2019t have enough money to buy an ounce of gold\u2014or even a tenth of an ounce of gold\u2014need no longer turn to silver as a cheaper alternative. This makes industrial supply and demand factors more important than ever to the price of silver.<\/p>\n\n\n\n Does this mean we should give up on silver?<\/strong><\/p>\n\n\n\n Absolutely not.<\/strong><\/p>\n\n\n\n For one thing, if China\u2019s economy really is rebounding, industrial demand for silver could easily boost silver prices this year. This could even happen if gold remains flat.<\/p>\n\n\n\n And despite industrial demand being more important than ever for silver, silver remains linked to gold, and remains much more volatile than gold.<\/p>\n\n\n\n\n