Will Silver Catch Up to Gold?
Why is silver underperforming, and is this an opportunity or a sign of something else?
While it is difficult to know why exactly silver is underperforming in just a two-and-a-half-month timeframe, the most obvious answer to this is that silver is not just a precious metal — it is also an industrial metal, and about half of silver’s demand comes from industrial applications while only about a fourth of silver demand comes from investors. As we have seen this year, industrial metals such as copper and lead have underperformed, which signals economic weakness. If there is, in fact, economic weakness, then it follows that there will be less industrial demand for silver.
While this is certainly a plausible explanation I think that this is creating a long-term opportunity in silver. There are several reasons for this.
First, silver is undervalued relative to gold. While it takes about 65 ounces of silver to buy an ounce of gold, only about 10 ounces of silver comes out of the ground for every ounce of gold that comes out of the ground.