Oct. 20 (Bloomberg) -- Silver may outpace gold through mid- 2010 as a recovering global economy increases industrial demand, said Citigroup Inc.
The CHART OF THE DAY shows the ratio of gold to silver. An ounce of gold bought 59.4 ounces of silver on Oct. 14 when gold for immediate delivery jumped to a record $1,070.80 as investors sought an alternative to the weakening dollar and a hedge against inflation. That compares with 48.5 ounces when gold first exceeded $1,000 on March 13 last year and 43.6 on April 19, 2006, the lowest level in the past 10 years.
“Silver is set to benefit from stronger gold, but also the improving outlook for global industrial production,” said David Thurtell, a London-based analyst at Citigroup, in an interview. “I think the gold-to-silver ratio can get to the low 50s.”
When gold reached $1,000 for the first time, silver traded above $20 an ounce, compared with $17.82 now. Silver has already climbed 56 percent this year, more than double the 21 percent advance in gold. Gold is on course for its ninth straight annual gain while the U.S. Dollar Index, a gauge against six major currencies, has fallen 7.4 percent this year.
“The dollar’s decline has been pushing gold to a series of record highs,” Harjas Wadhwa, vice president for New Delhi- based AUM Capital Market Private Ltd., said. “If gold moves higher from here, you’d expect silver to outperform,” he said. “It has a lot of catching up to do” since “bullion’s bridesmaid” was more than $20 an ounce when gold first surpassed $1,000, he said in a report.
Industrial applications such as electrical switches and batteries accounted for 50.3 percent of silver demand in 2008, compared with 40 percent five years earlier and 51 percent in 2007, according to The Silver Institute. Use in jewelry comprised 18 percent, followed by photography with 12 percent. “Net investment” about doubled from 2007, to 5.7 percent of demand, according to the Washington D.C.-based institute. The world economy will expand 3.1 percent next year after shrinking 1.1 percent in 2009, the International Monetary Fund forecasts.
1 comment:
Overcapacity suggests to me that industrial demand won't be kicking for years, meanwhile gold makes new nominal highs, exceeds the previous high by 4%, and silver advances to a new 52-week high that was about 2.5% higher than its previous 52-week high, and was over 15% lower than its multi-decade high, and that was about half as low as the 1980 all-time nominal high. I'm not even talking about inflation adjusted here, inflation adjusted silver would have to hit like $150 to make a bonified all-time high while gold would just have to double or triple. So what I'm seeing here is a lot of deflation/inflation confusion driving safe-haven buying from all sorts and then a bunch of small-time speculators levering that, and as volatility has been tranquilize gold has acted increasingly sedate on an intraday basis over 2009, so it looks like a decent boat. Silver has wicked beta and, I must say, is my favorite individual instrument because its vega is similarly low relative to gold, its not hard to accumulate on dips for swing trades. Eventually silver could be priced in the hundreds of dollars with the ratio in the 20s but the kink in time...
I don't want to fall into the trap of laying down salient values for people to anchor on regarding where these metals might fall before really taking off, I have a few in mind and its not really healthy. I will say that gold will probably out-perform everything in terms of losing less if we see a repeat, more extreme or less, of the 2008 sell-off. That includes silver, if gold is down 20% silver will be down 40%, equities would probably be down 50-60% in that scenario.
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