Week 20: Silver set to head higher

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Week 20

SILVER SET TO HEAD HIGHER

Silver might not have the glimmer of gold but it is set to outshine the precious metal over the longer-term.

Despite the recent volatility in precious metals we remain bullish on the long-term outlook for silver, particularly when viewed against gold. We believe recent weakness in silver prices provides investors with a handy entry point to buy and hold.

Silver has a range of virtues that should see it perform well. Silver is positioned to bene t from a stronger economy because of its considerable utility and demand as an industrial metal. If the economy weakens or there is another crisis, silver will benefit because of its perceived status as a safe-haven asset and this would allow investors to hedge their bets in both directions.

In our opinion there are signs that silver will continue to perform strongly and offers considerable upside to investors over the medium to long-term. Further supporting our positive view on silver, and a useful tool to understand the relationships amongst precious metals, is the ‘gold-to-silver ratio’, which is useful in determining whether silver is undervalued relative to gold.

The ratio shows the amount of silver required to purchase one ounce of gold, and is simply calculated by dividing the price of silver into the quoted price of gold. In the early 1990’s the ratio was as high as 97 and over the past nearly 30- year period it has fallen as low as 35, showing a clear trend in favor of the price of silver outperforming that of gold.