Friday, January 20, 2012

Silver, a future road yet travelled

Where is silver heading in 2012 we might wonder. There are a lot of predictions around for the price of silver in the coming year but perhaps the following may give a clue as to how high the silver price may go.

One factor to look at is the ratio between silver and gold. For hundreds of years the ratio in value was around 15:1 that is 15 ounces of silver would buy one ounce of gold. In recent years, however, this ratio has changed markedly to where it now ranges around 45 to 55 silver ounces needed to buy one ounce of gold. This all started when the gold standard was removed in 1975. Prior to then gold was steady as was silver. As soon as the gold standard was removed the price of gold naturally shot up from a then 35 dollars an ounce to a new range of 1600 to 1800 dollars an ounce over the course of forty years. But silver has not progressed anywhere near the same moving from around 5 dollars an ounce up to the current range of 28 to 32 dollars an ounce. If the trend of silver value had followed gold, silver would be around 105 dollars an ounce now.

Another big disparity in silver of course is the shortage of silver plotted against the low price. The cost of mining silver means that most silver is not mined from silver mines but as a by-product of other mines. As a consequence the silver stocks above ground have been diminishing steadily while the demand for silver industrially has been on the increase with the steady expansion of technology.

The major obstacle holding down the silver price is the constant shorting of silver by four big banks, one of which holds a massive 200 million ounces of paper silver. Collectively the four banks hold more actual ‘paper’ silver than actual silver available.

But if you stretch an elastic band too far it will eventually snap back and shorting a commodity to such an extent is going to eventually cause a massive rebound resulting in a gigantic upswing in the price of silver.

The question of course is when will it be?

There is some feeling among investors that it is almost at breaking point.
So as no one knows exactly when the price of silver will rise now is likely the best time to buy silver.

The question then becomes what type of silver to buy?

There are many types of silver and which is the best to buy will depend on a number of factors, why you are buying silver, how much you can buy and how you want to store it immediately come to mind.

If you buying silver simply to protect your assets then the largest silver bars you can buy is the cheapest way to go. The mark up or premium per ounce is less and they can be stored in bank vaults or with secure storage companies such as the Reserve Vault in Brisbane, Qld.

If you can only afford to buy small quantities at a time there are many bullion companies around Australia where you can buy silver coins or rounds at just over the spot price. How much premium you pay can be negotiated if you are buying larger quantities of coins. The coins are generally one ounce although it is possible to get smaller and larger sizes.

Eitherway, now is definitely the time to buy silver.

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