View Full Version : Sparkling beauty: Silver outperformed gold

7th July 2008, 14:56

Sparkling beauty: Silver outperformed gold
7 Jul, 2008, 1347 hrs IST,Kiran Kabtta, ET Bureau

As gold prices continue to soar, investors can seek solace in ‘the poor man’s gold’ . Despite traditionally being overshadowed by its richer yellow cousin, silver this year has outperformed gold by generating a year-to-date (YTD) return of 22.6%, against 11.8% registered by gold.

Silver prices are currently ruling at a multi-year record high of $18 per troy ounce in the US. Investment demand has been the major contributor to this rally. The subprime crisis and interest rate cuts by the US Federal Reserve spurred buying interest in silver.

The intermittent weakening of the dollar also pushed up prices. Silver is the cheapest among the currently traded precious metals, and has been party to the commodity bull run since ’04. It shares a high correlation with gold and largely moves in tandem with it, albeit in a more volatile manner.

The correlation between gold and silver prices since the beginning of ’05 till date has been 97.4%. On the supply side, mine production, sales by governments and scrap sales are the leading suppliers of silver. The principal sources of silver are ores of copper, copper-nickel , lead and lead-zinc.

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With mining of base metals gaining ground across the world, silver production is bound to increase. Mine production of silver has been steadily increasing due to higher mining output in Latin America and China, and recovery of output in Australia.

Total mining production rose by 3.6% during ’07, and is expected to register a similar rise this year. Sales by governments and scrap sales fell in ’07, and the current commodities bull run will not incite sales from these sources.

Unlike gold, silver has varied fabrication uses in the industry, apart from being a store of value and a jewellery item. Silver is the best electrical and thermal conductor of all metals. Hence, it is used in many electrical applications, particularly in conductors, switches, contacts and fuses. As a result, industrial usage is the largest component of total silver demand, which has been growing at an average rate of 5-7 % annually.