The case for silver is compelling. There is simply not enough to go around. The same can be said for gold but in reality, gold is something…to quote famous resource financier, Rick Rule…that goes from one hole to another…from a hole in the ground (mine) to a hole in the wall (vault). It is bullion currency, pure and simple. Sure it has marvelous conductive features but do you really want to lay gold wire when you can lay copper. Of course you will find some gold use in medicine and electronics but for the most part people view it as a store of wealth, whether ornamental as in jewelry or utility as in coins or simply bullion bars. So that’s why most of the gold ever mined is still around…and according to who you believe, would fill between 2-3 Olympic size swimming pools.
Silver on the other hand, is both currency and commodity. Sure….it’s use in photography has diminished almost completely since the advent of digital camera technology but it’s usage in everyday “necessities” such as Iphones and tablets has also increased exponentially. It is also used very much in medicine and is a necessity in solar. So a lot of the silver being produced gets consumed.
More importantly to the silver bulls, it is viewed as the poor man’s gold. Simply speaking, when there is the inevitable mad rush for gold and it spikes to significantly higher numbers than today, many fine folk will simply not be able to afford it. But they will be able to afford silver and they will buy it like crazy as their personal inflation fighter.
The gold / silver ratio is simply the number of silver ounces it would take to buy an ounce of silver. Currently it is around 55:1 which means it would cost you 55 oz or silver to buy a single oz of gold. Over the past 10 years this ratio has gone as high as 83 and as low as 31 but historically, during a mania phase in bullion, it can compress as low as 15. So if gold has reached 5000 / oz and the gold / silver ratio is 15, silver is trading at 333 / oz. …over a 1000% increase from today’s price….verses gold’s increase of roughly 300%. So that may help to explain why the silver bulls are so bullish.
But if the mania never comes…because maybe this time it really is different…and the central bankers are indeed God personified…then at least we know that the shiny silver stuff will increasingly be used elsewhere…either to help you make a phone call or to maybe heat your house…or heal your body. So maybe silver doesn’t reach 300 but I suspect that it won’t hit 3 either.
