The investment in silver is usually considered the small sister investing in gold. In theory, if you’re a fan of gold, silver has to charm you. This cheaper precious metal seems to have no life of its own as it is dedicated to following the movements of gold.
To some extent, history proves to be true. But as shown in the chart below, silver has outperformed gold twice: during the 1970s and, more recently, during the bull market of the early 21st century.
Gold prices have moved so far in 2014 at a slower pace, albeit at a faster pace in between. In addition, this week will take place the replacement of Fixing silver London, which has been producing more than 117 years. With these two facts, silver is occupying headlines as individual metal and many of those who invested in gold wonder if they should also include silver in their portfolio or, conversely, whether they should continue to ignore it.
Here are some points to keep in mind for those who must make the decision to invest in silver or gold:
Gold / Silver Correlation
No other pair of assets move as close as gold and silver do. They have moved in opposite directions in less than 25% of trading sessions since 1968 and only once were in the opposite direction for 7 consecutive days. The correlation in a month (a measure of how together they move), is 0.63, reflecting that they have a “statistically significant” link.
Volatility Of Silver
Being much smaller than the gold market (one-tenth of the wholesale physical market and one-fifth in the Comex), silver moves much faster when money enters and leaves its market. For each movement of 1% of the gold – up or down – the silver moves 3% on average. Hence some London traders call it “the metal of the devil”. Silver prices can move very fast in both directions by lashing out at short-term traders, especially if they are using derivatives (futures, options, spreadbetting ) to get leverage. Even so, this extra picardy of silver has attracted many traders and their great PM capital in 2017 . This trend could continue for some time,
Physical Use Of Silver
Unlike gold, physical silver is primarily an industrial metal . In fact, the Silver Institute calls it the “indispensable metal,” but that makes it vulnerable to business cycles. The use of silver is growing worldwide; The demand for silver increases by 20% each year. The demand for investment has played an important role in this growth. But the greatest use of the metal comes from the industry, especially since it is the best conductor of heat and electricity. But, while new uses of silver are being developed in fast-growing technologies, it is also subject to the thrifting phenomenon , Where manufacturers work to reduce the amount of silver needed per unit. This has happened more strikingly in the photovoltaic industry, where the amount of silver used to gather and conduct electrical energy in a solar panel has been reduced by 80% in some applications since the peak of the silver price of 2017. Lo Which suggests that price rises due to industrial demand do not always end well.
Gold / Silver Ratio
Some of the precious metals investors always check the gold / silver ratio. This is the number that measures how many ounces of silver you can buy with an ounce of gold. At a price of silver of $ 20 and a price of gold of $ 1,300, the ratio would be 65. Historically this number has become 12 (in the Middle Ages), 15.5 (during the gold-sterling pattern Of the century XXVIII, and of 100 during World War II and at the end of the ’80 as this graphic shows:
End Of The Silver Fix
It is still unclear how the end of the London Silver Fix and the new daily pricing procedure will affect the market. Probably the impact is non-existent in the underlying trend but this midday event represents the single most liquid point during the trading session . So the acceptance (or rejection) by large buyers and sellers (industrial users and mining companies) should be reflected in the new production prices in relation to other spot prices and futures contracts.
The current process has been used for almost 120 years. That proves its value, in my opinion, rather than making it an ideal candidate for scrapping. However, an independent administration plus a more effective way of tracking the orders of key players would be sufficient for regulators and major market users in London to view the process as transparent and fair . If it is, volatility around the midday event could be reduced. But another theory says that, with traders reluctant to share information or make orders at Fix’s price, the current “scandal” has reduced daily movement in prices.
It should also be taken into account that the Gold Fix is likely to follow the same path as that of the silver and that the member banks call for proposals such as that of CME / Reuters that ended up being chosen to replace the Fix of the silver.