MyValueResearch

Silver

Silver is one of the most famous precious metals like gold though it’s unusual properties makes it very different. Today,  silver  is  sought  as  a  valuable  and  practical  industrial  commodity,  as  well  as  an  appealing  investment  precious  metal. Although silver is relatively scarce, it is the most plentiful and least expensive of the precious metals.The largest silver producing countries are Mexico, Peru, the United States, Australia and Chile. Rajasthan , Gujarat  and Jharkhand are the most popular states in india which produce silver. China , United Kingdom , European Union , Australia and Dubai are the most importing countries of silver. There are different types of silver based on the content of other metals mixed in to the silver namely Sterling Silver – Silver at least 92.5% pure and Britannia Silver – Silver at least 95% pure.

 
Market influencing factors

Ø Price movements of other metals.
Ø Inflation.
Ø Available supply verses Fabrication demand.
Ø Fluctuation in deficits and interest rates.
Ø Income level of the rural sector of the economy.

Silver is traded in International Exchanges like CBOT, DGCX, NYMEX and TOCOM while in India it is traded in MCX and NCDEX and NMCE.

Contract Specification of Silver:

Gold and Silver Ratio:

Silver can be an effective means of diversifying investment assets and preserving wealth against the ravages of inflation for the average investors. Although the value of silver may vary, it has an intrinsic value that is immutable and permanent. When the first coins were made over 2,500 years ago in ancient Greece, the ratio of gold to silver was generally between 10:1 and 13.5:1, depending on the relative proximity of gold or silver mines.  According to historic price ratio of silver to gold shows that about 10 ounces of silver would buy one ounce of gold, it means the ratio between gold and silver is 10:1.

The peiod between 1976 to 1980, was remarkable period of bull market in precious metals, showed the ratio 17:1. Again, when  the market entered into recession in the year 1990 and 1991, the ratio rose from 71:1 to 100:1.
 
It is evident from the past history is that we can expect silver to drop faster than gold during a recession, and silver will rise faster than gold during a bull market in the metals. The main driver for the rise in the silver price between 1976 and 1980, and the concurrent dropping in the ratio, was investment demand. 

But the recent monthly ratio is about a 75:1 ratio. It can be summerised by the below drawn chart that the gold and silver ratio lies between 47- 75  since November 2003 to November 2008 . It means silver is historically cheap as compared to gold.

A simple application of this observation is to trade silver for gold in the middle of a recession, when an expansion in the economy starts and demand for commodities also increases.