There are interesting digressions going on in silver and
gold plays, which reveal a sizzling opportunity as far as investing is
concerned. Historically, price of gold and silver has been 16:1, based on the
assumption that the availability of silver on earth is 16 times more than gold,
or availability of gold is 1/16th times that of silver. So, theoretically the price of
gold to silver should not rise beyond 16:1.
The Ground Reality
1. Annual mining of gold is 80 million ounce, versus 750
million ounce for silver. Annual recycled amount is 50 million oz. and 250
mill. oz. for gold and silver. So, in total, market availability is 130 million
oz. for gold and 1,000 million oz. for silver. This gives us current availability
ratio of 8:1 for silver and gold.
2. Not all gold and silver are available for investment
purposes, due to their various use in industrial applications. For investments
(jewellery, bars and coins), the annual availability of gold and silver is
roughly 120 million oz. versus 350 million oz. So, real availability ratio of
silver and gold is 3:1.
2. In reality, investors are allocating their investments
between gold and silver in totally different way. Actual Sales of silver in
2012 was 33,742 million oz., versus 744 million oz. for gold. This gives us a
sales ratio of 45:1 for silver to gold.
3. Whereas, availability ratio for silver to gold is 3:1,
sales ratio is 45:1 in physical value and 55:1 in dollar value. So, investors
choose to buy silver at a ratio that is well above what is available.
|
|
GOLD
|
SILVER
|
RATIO
|
|
Annual
Mining (mill. oz)
|
80
|
750
|
|
|
Recycled
(mill. oz.)
|
50
|
250
|
|
|
Total
Availability per year (mill. oz.)
|
130
|
1,000
|
8X
|
|
Available
for Investing (mill. oz.)
|
120
|
350
|
3X
|
|
U.S.
Mint Actual Sales in 2012 (mill. oz.), partial data
|
744
|
33,742
|
45X
|
|
Investments
Value (Billion $)
|
9,000
|
150
|
60X
|
|
Market
Price (in USD) on Dec.28,2012
|
$1,656.30
|
$30.00
|
55X
|
How Prices are
determined?
The silver price is essentially set in the paper market
where the daily average trade on the Comex is approximately 300 million ounces.
This is against the daily average mine production of about 2 million
ounces! So, no surprise that the price
of silver is such severely manipulated!
The investment market for silver is smaller. While the
dollar value of gold in the world approaches $9 trillion, the value of investable
silver is estimated at around $150 billion. This is a ratio of 60:1 in dollar
terms.
Where is the Market
Moving Ahead?
Like we said, historically price ratio of gold and silver is
16:1, Today this ratio is 55:1. So, what are these numbers telling us? In all
likelihood this price level cannot be sustainable, silver being such severely underpriced. Those who are smart
investors and follow the market, they will be rewarded. Expect a super bull
market for silver ahead.
