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Industrial demand revival to turn silver into gold

Silver may be the new gold. The reason is prices have fallen sharply compared to gold. As a result, the gold/silver ratio has risen to a five-year high. The ratio shows the ounces of silver you can buy with one ounce of gold. At present it is around 71, previously seen five years ago. A high ratio means silver is undervalued compared to gold and will fall much less versus gold, or when prices increase silver will rise faster.

In three months beginning June, international gold prices have fallen 8.8 per cent to $1211 an ounce while silver has fallen 19 per cent to $17.02 an ounce. The ratio increased from 63 to 71 in just three months.

Silver traces gold in precious metals but unlike it a large part of its demand comes from industrial use. It is found in almost every electronic device, including smartphones and tablets. It is a crucial element in manufacturing the photovoltaic cells used in solar panels and automobile components. An expected global economic pickup is good news for silver. So analysts see the fall in silver to be contained. A US-led upswing in global growth is expected to spark commodities’ demand.

Research houses saw their targets being touched on Friday night when gold closed below $1,200 per ounce. Now these are busy forecasting the future course. Thiagarajan believes there is still downside left for gold, but for silver the fall may not be much from here. He said, “Investors can buy silver between Rs 38,000 and Rs 36,000 a kg.” For gold he believes Rs 24,000 per 10g may be a good buy as internationally it may correct to $1,050 per ounce.

Source Business Standard


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