Silver Could Rise Even if Gold Falls


". . .silver's run is yet to get started."

With individual investors and central banks still buying gold, its meteoric rise shows few signs of stopping, at least for now. As a result, the gold/silver ratio suggests that silver has some catching up to do. But silver has one advantage that gold doesn't. . .

The Supply-Demand Equation Bodes Well for Rising Silver Prices

Unlike gold, silver is used in more commercial and industrial applications. The list is extensive—electrical contacts, mirrors, jewelry, currency coins, photographic films and as a catalyst in many chemical reactions.

However, silver production is dropping. Much of it comes as a by-product of other mining and refining, primarily lead and zinc. But due to plummeting prices created by oversupply, many lead and zinc mines were mothballed back in 2008. As a result, silver production stalled with lead and zinc—and inventories are now at historic lows.

That's the supply side of the equation. But what about industrial demand? In short, it continues to rise. So with silver supplies lagging, silver prices are likely to head in one direction: up. There's another big difference between gold and silver.

Don't Ignore Silver

Most fund managers won't touch silver with a 10-foot pole. Why? At around $9 billion, the size and liquidity of the silver market is roughly 20 times smaller than the gold market.

However, it might be a mistake to ignore silver. With supplies continuing to fall and demand continuing to rise, the metal could very well make a very dramatic move to the upside over the next three to six months—even if gold prices fall.

A deteriorating U.S. dollar suggests that while gold's meteoric rise still has room to run, silver's run is yet to get started.

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