Why Buy Silver?

Silver prices are on the rise. With silver reaching record levels this year, investors are hesitant about buying into such a strong market. After all, how much longer can silver sustain this climb upwards?

Gold to Silver Ratio

Market analysts agree that there is still a lot more money to be made in silver, despite its robust showings and impressive prices. Historically, the silver-to-gold ratio has been an excellent indicator of price. During a low spell, like the one in 2008, it can take up to 90 ounces of silver to buy just one ounce of gold. When silver is doing its best without performing at an inflated price, you can buy one ounce of gold for just 15-20 ounces of silver. Any less than that and history tells us that the ratio falls into volatile and therefore dangerous territory. What does this mean for today? Last Labor Day weekend, silver breached the key resistance level of 40. This happened for the first time in 13 years. This means that although silver has risen 790% in the last ten years, it has a lot of steam left. Historically, once silver breaches the 40 level, the gold-to-silver ratio will continue to fall until it reaches the optimal level of 15-20. However, it is important to note that a low gold-to-silver ratio does not necessarily bode well for silver and badly for gold. It could just as well mean that both gold and silver prices are rising, but the latter at a faster rate.

Now that the gold to silver ratio has breached 40, it will continue to retreat and all signals point to this happening at a very aggressive pace. Now, will prices reach their peak next month or next year? It is unlikely. But it is a pretty good bet that silver will get there in the next few years. If you have the opportunity to slowly buy into this market, so much the better for you and your portfolio.

Greater Demand

There is a greater demand for silver than ever with investors facing so much uncertainty with paper money. Nations like China are eager to buy into a commodity with such dependable intrinsic value. In fact it is next to impossible to find silver bullion in today's China. The Chinese are buying up as much silver and gold as they can get their hands on to hedge against the uncertain U.S dollar. Sure, they're sitting on $2.5 trillion of U.S debt, but this has the potential to be completely worthless in the future. Smaller scale investors unwilling or unable to buy into gold are stocking up on silver to ease their worries about inflation and worldwide unrest. This demand of course, only makes the price of silver stronger and more consistent. In addition, silver has many industrial applications unlike gold. The electronics industry takes up 45% of the world's demand for silver.

Silver can act as a great hedge against inflation because it is a great store of value. The intrinsic value of silver is immutable. In the ten year span between 1971 and 1981, the U.S dollar lost more than half of its value. Nonetheless, silver prices rose five times.