Key Drivers for Silver Prices in 2013
Key Drivers for Silver Prices in 2013
1. The Gold/Silver Ratio: Before the financial crisis, the gold/silver ratio was around 50 (meaning an ounce of gold would buy you 50 ounces of silver) and trending downward. In late April last year silver exploded higher, pushing the ratio down below 30.
That was short-lived, as silver's dramatic rise was unsustainable. The ratio recently returned to a high level near 60. In 2013, look for the ratio to head back down again, meaning silver will rise faster than gold.
On a long-term basis, the thinking here is that this ratio will move down closer to 20. So right now, silver is looking rather undervalued relative to gold.
2. Four More Years of Obama: The President has been very good for silver prices. In fact, he was so good, he helped make silver the best-performing major financial asset during his first term.
Now that Obama has earned another four years, and Federal Reserve Chairman Ben Bernanke's still in place and relying heavily on the printing press, I'm fully expecting a repeat performance.
3. Higher Industrial Demand: Solar panel demand is exploding and silver is used to make them, of which the average panel requires about two thirds of an ounce. Since 2000 the adoption of solar panel technology has meant a 50% annual increase in silver usage each year, going from 1 million ounces in 2002 to 60 million ounces last year, representing nearly 11% of all industrial demand. Adding fuel to the fire, Japan has recently offered to pay utilities three times the price for electricity generated from solar versus conventional methods.
Unlike gold, silver has a wide range of industrial uses. There's currently growing demand from an increasing number of industrial applications, including lighting, electronics, hygiene and medicine, food packaging, and water purification, to name but a few. That's bullish for silver.
