Filed 16 July 2012, 15:17 IST. Every price, volume and forecast below is reproduced as published on that date and is not a current quotation. For how the benchmarks themselves are set, see how gold is priced.
A mid-2012 argument for investing in silver, built on three familiar supports: a gold-silver ratio that was historically wide, industrial demand that was expected to grow with electronics and photovoltaics, and mine supply that comes largely as a by-product of other metals and so does not respond quickly to a higher silver price.
This page is preserved as a dated market view, not as advice. Silver was around $27 an ounce when it was written. It fell below $14 by the end of 2015, and the gold-silver ratio, the argument's central support, moved from the mid-fifties toward eighty, which is the opposite of what the case required.
The three arguments, and how each held up
The ratio. The gold-silver ratio is simply how many ounces of silver one ounce of gold buys. The argument is that a historically wide ratio must narrow. Its weakness is that there is no mechanism forcing it to: the ratio's long history includes centuries of monetary arrangements that no longer exist, and in a market where half of silver demand is industrial there is no reason it should track a metal whose demand is mostly monetary and ornamental. Between 2012 and 2015 it widened.
Industrial demand. This was broadly correct as a description and did not produce the predicted effect. Electronics and photovoltaic offtake did grow. But photovoltaic manufacturers spent those years reducing silver loading per cell for exactly the reason the argument assumed they would not, namely cost, and demand growth in tonnage was offset by that thrifting. Demand rose; the price did not.
Mine supply. Also correct, and also insufficient. Most silver is produced as a by-product of lead, zinc, copper and gold mining, so its supply is driven by the economics of those metals rather than by the silver price. This does mean supply is unresponsive to a higher silver price, and it equally means supply does not fall when silver falls, which is the half of the argument that gets left out.
Why it is kept
Because an archive that removed the calls that failed would be worthless. The point of a dated record is that it shows what was argued at the time, with what reasoning, by people who were not stupid, and the reasoning here is the standard silver case, made competently. Reading it against the outcome is more instructive than reading either alone.
For the durable half of the silver story, the industrial and medical material that has aged much better than any price argument, see the silver section and the dispatch on the antimicrobial mechanism. Nothing on this site is investment advice.
Questions about this dispatch
What is the gold-silver ratio?
The number of ounces of silver that one ounce of gold buys. It is the most common support for a silver investment case: when the ratio is historically wide, silver looks cheap relative to gold. Its weakness is that no mechanism forces it to narrow, and much of its long history reflects monetary arrangements that no longer exist.
Did the argument in this dispatch work out?
No. Silver was around $27 an ounce when this was written and fell below $14 by the end of 2015, while the gold-silver ratio widened from the mid-fifties toward eighty, the opposite of what the case required. The page is preserved with its date prominent precisely so that can be read alongside the reasoning.
Why did rising industrial demand not lift the silver price?
Largely because of thrifting. Photovoltaic manufacturers spent those years reducing the silver loading per cell to cut cost, so tonnage growth in the application was offset by less metal used per unit. Demand grew in units and much less in metal, which is the case's blind spot.
Is this page investment advice?
No. It is a reproduction of a market view published in July 2012, kept as a dated record of what was argued at the time. Nothing on this site is advice, and this dispatch in particular is preserved as an example of competent reasoning that the following three years contradicted.
This page restores an item first published on 16 July 2012, 15:17 IST at the address below. Cite the publication date rather than the date you read it: the material is a 2011 to 2016 document, and the date is what makes it meaningful.
https://www.bullionstreet.com/news/nows-the-perfect-time-to-invest-in-silver/2311