Segunda, 11 Fevereiro 2013 00:00
Published February 2013 in the magazine: Macau Business
High demand and limited supply of silver are making the metal an attractive alternative investment
Pockets: Silver lined
by André Ribeiro
The silver market is relatively obscure and unknown to most mainstream individual investors. So, when considering investing in precious metals, most go for gold, largely because of the recent hype about its prospective returns. Few seem to know that the upswing forecast in silver prices is much higher.
Silver has been used for money throughout history by various civilisations. In several languages, the word silver is a synonym for money.
For centuries, China’s monetary system was based on a silver standard, abandoned only in 1935. From 1949 to 1982, private individuals in the mainland were forbidden to own gold and silver. The 2000 liberalisation of the silver market was one of a number of reforms.
Basic economic theory says the market price of any good is set by the relationship between supply and demand. For silver, growing demand and only slow growth in supply are the fundamental reasons that much higher prices are in prospect.
On the supply side, not many mines that primarily extract silver are in operation today. Most newly mined silver is a by-product of mining for other metals, including lead, zinc, copper and gold.
This means most mining companies that produce silver do not regard it as their core business or main source of revenue. They cannot easily respond to higher prices for silver by increasing their output rapidly or to any great extent.
Central banks do not keep huge reserves of silver like the hoards of gold in their vaults. So they have no big stockpiles to release to control prices when demand rises.
Waste of Metal
Cheap at the price
Analysts expect demand for silver in the mainland to grow in the coming years, driving up the global price. Silver is now relatively cheap. During the course of history, one ounce of gold has been worth, on average, about 16 ounces of silver. On January 15, one ounce of gold could buy about 54 ounces of silver.
If gold were to remain at US$1,680 (MOP13,440) an ounce, its price on January 15, and the ratio of the price of gold to the price of silver were to return to its historical average, silver would fetch about US$105 an ounce, or 235 percent more than it does now. If one ounce of gold was worth 10 ounces of silver, silver would fetch US$168 an ounce.
Given the fundamental supply and demand, silver looks set to leap in price. It is likely to outperform gold in the next 10 years, since the market for silver is smaller, making it more volatile.
For centuries our ancestors used silver as currency. Today the metal presents a rare opportunity to make a handsome profit on a medium-term investment.
The views expressed here are those of the author and are not investment calls by Macau Business
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