Commodities

Good News For Investors As Silver Prices Surge

Published

8 years ago

May 18, 2016

Good News For Investors As Silver Prices Surge

This could be close to the bottom of the market for silver. Here’s why silver should be considered as a serious investment right now.

The Only Way Is Up

Last month was a bad one for silver, but it may be the last one for a while.

It hit a ratio with gold of 83:1, that is to say, a single ounce of gold could get you 83 ounces of silver. But the story since then is one of steady improvement, and prices are set to improve through 2016.

A Bad Run For The Precious Metal

Silver prices had been in a three-year decline at the start of 2016, the precious metal’s worst run this century.

At the beginning of 2016, it was trading at $14 per ounce.

But as of last week, that price had risen to $18. A 28% increase since the start of the year. In contrast, gold prices have risen 11%; the ratio is shrinking.

The Poor Man’s Gold?

It’s easier to invest in silver than it is in gold. As such it’s a way to invest in precious commodities without breaking the bank. It’s far easier to invest in one $20 Silver Eagle than it is to spend $1200 on a Gold one.

Silver offers an opportunity to invest relatively cheaply, and with more room to grow than gold, it offers a prudent investment at a lower outlay.

An Unstable World

Historically investors flock to precious metals at times of crisis. The global financial markets have never truly recovered from the crash of 2008; investors are warier in these uncertain times.

With the price of gold as high as it currently is, silver offers a good alternative. In 2015, investors were the single biggest driver of the silver market, buying over 9000 tons, up 24% in the previous year.

As a physical commodity, precious metals can act as a hedge against fluctuating markets. A silver bar isn’t some stock that’s out there in the ether, it’s a physical thing, like property or Art.

Silver Follows Gold

Silver prices have always followed those of gold, and that commodity is steadily on the way up. While there may be a small silver price correction in the very short term as its gains since the start of the year have been large, long term the precious metals market is growing steadily, driven by the rise of gold.

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Reasons to invest in silver

Prices set to rise
Less financial outlay than gold
Instability of global financial markets
Prices rising faster than gold
Physical commodity

Strength Of The Dollar

Silver’s rise has come despite the current strength of the US dollar against all other currencies. With the dollar as strong as it currently is, it’s difficult for silver prices to rise by much. This is good news for investors long term, as it proves silver’s value increase isn’t down merely to the markets. There are other drivers to the price.

Where The Dollar Goes From Here

Better news for potential silver investors is that the current strength of the dollar can’t last long term. In fact, there are already signs that it’s weakening.

The dollar index has fallen from 98 to 92 since the start of this year. As silver is a dollar-denominated product, the falling dollar over the long term can only be good news for investors, with more silver for your buck.

Supply And Demand

Silver’s recovery is down to one of the oldest rules of the marketplace. Supply and demand. The Silver Institute last month released the supply and demand data from 2015. It showed that overall silver use last year increased 3.4% to 36,407 tons, marking an all-time high for silver usage.

At the same time, there was a supply shortfall of over 4000 tons. This is a dramatic increase from the previous year’s 2000-ton shortfall. This disparity between supply and demands will only create price rises for silver long-term.

Artificially low prices

Silver has generally traded at a ratio with gold of 40-50:1. The 83:1 ratio seen last month was the highest ever recorded, and it indicates that silver prices are artificially low compared to gold. As the situation normalizes silver prices relative to gold will increase. Silver is, in effect, trading at a big discount right now.

Reasons the price will continue to rise