Silver Chases Gold HigherWill Granderson
In the precious metals trade it’s not unusual for gold to get all the attention. Silver’s like the working class brother of a big star; it gets left out of the headlines and the red carpet photos but that doesn’t mean you should forget about it. Prices are on the rebound but the recovery has lagged somewhat behind gold.
Besides being a precious metal and one that used to make up our coins, silver’s also a crucial industrial metal. Some of its many applications include:
- Consumer electronics, including computers, tablets, laptops, smart phones and more
- Automotive systems, including various electronics and control systems
- Air conditioning
- Solar panels
- Medical, surgical and dental equipment
- Jewelry, luxury goods and home décor and electronics
Subject to Commodity Forces
Thanks to its dual role as both money and an industrial metal, silver is subject to the bigger market forces facing all commodities. When the dollar started its upward march in 2011, the same force that started oil prices sliding, silver prices adjusted to the buying power of the dollar. The dollar got more and more stretched out of shape as our Federal Reserve held the line on hiking interest rates at a time other central banks were printing money. Commodity prices got more and more stretched out of shape by central bank follies.
Borrowing Costs Trigger Devastating Slowdown
When the Fed finally carried through on its threat to raise interest rates, it also raised borrowing costs for many big companies and small countries. Already squeezed by a lack of income from export commodities, the smaller countries quit buying as much stuff and the global economy cooled down across the board. The slowdown hit China the hardest and, with a stock market that was seriously overvalued, the world’s second-largest economy went into free-fall.
Reflecting Back on Silver
The slowdown in China meant a deceleration in electronics production, which means silver took it overall harder than gold. With prices at bargain levels, coin buyers swamped the U.S Mint with orders for U.S. Silver Eagles, selling over 47 million ounces in 2015. So far, 2016 promises to be a record year for sales. This year is significant too because it’s the thirtieth anniversary of the U.S. Silver Eagle coin. Production of the coin series was started under Ronald Reagan in 1986. Sales of one ounce Silver Eagle coins are far ahead of last year and the Mint is rationing its allotment to qualified dealers.
Silver Bounces Back
Silver prices have come roaring back as the dollar slides on world markets, with prices surging five percent on the week and up fourteen percent on the year. The electronics industry is undergoing growing pains as younger consumers, unlike those of us who like to stretch out in comfort, increasingly consume media hunched over their phones. But with the job market healthy, the lure of shiny new phones will be hard to resist. Meanwhile, as those kids grow into houses and families, the rise of media rooms and Netflix-ready flat screens will be non-stop.
Expect – and Even Profit from – Silvery Volatility
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Due to its dual nature as a working-class precious metal, expect silver’s price recovery to be choppier than gold. There will be times when silver lags behind gold both on price upswings and during market selling. But the trend is higher and 2016 looks like a great year for silver and those smart enough to see its power.