Silver Shines and Will Continue to Outperform Gold


". . .silver still looks the best buy for maximum gain in this precious metals bull market."

Silver had its best monthly gain in 22 years in May, and ended at $15.70 an ounce, still considerably shy of the $20 the metal reached when gold passed $1,000 in March 2008.

There is still some immediate upside in the silver price with gold finishing the week at $980, tantalizingly close to its former March 2008 high. While performing well over the past couple of weeks, silver has actually lagged behind the recovery in gold.

Welcome to the notorious volatility of silver whose leverage to the price of gold works both to the downside and upside. Caveat emptor, or volatility beware, silver still looks the best buy for maximum gain in this precious metals bull market.

It has been observed in previous gold bull markets that the ratio of the gold to silver price tends to reduce, partly because silver stocks are less than one hundredth the size of gold, so a sudden surge in demand produces a big impact on the price.

An ounce of gold is currently worth 63 of silver; when gold was used as a currency, this ratio stood at 15. So there is plenty of room for silver to continue to outperform gold as precious metal prices advance.

Currently also working in silver's favor is the economic recovery argument, which suggests increased demand for silver for industrial use. But this might prove a negative factor as euphoria over green shoots gives way to a more realistic assessment.

On the other hand, in a world where central banks are printing money and the U.S. dollar in particular is suffering devaluation, then gold and silver—which are priced in dollars—will benefit automatically as the relatively fixed supply of metal is re-priced to reflect the increasing number of dollars in circulation.

Should a bold investor switch entirely into silver and out of gold? It depends how much volatility you can handle, and diversification is preferable if you want to sleep at night. Silver was a little over $8 an ounce at the end of last year, though admittedly many investments hit low points then, but gold held up much better.

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