For many small investors who prefer investments in precious metals, this gray precious metal is the preferred option over gold for a simple reason – it’s the price. Similar to gold, it also fetches good returns when needed. But for this strategy to work effectively and to be beneficial, it’s essential that the silver price closely tracks the price of gold or, in other words, the silver-gold price ratio.
Recently it has seen that this ratio has become very volatile, or it can be said, silver has now started having its own price game and not directly having one to one relationship with the gold or in simpler words, it is no more directly proportional to the price of gold. It is setting its own trends of price variation. The year 2016 has been perfect for silver investors and has paid multi-fold to those who had wisely invested in silver a couple of years ago.
The historical data proves that silver has been treated as a form of money for more than four thousand years and a store of value. But since the end of the silver standard (a monetary system in which the standard economic unit of account is a fixed weight of silver) globally, silver lost its role as a legal tender (money exchange) in all developed countries. The exceptions are the bullion and collector coins like the American Silver Eagle with nominal face values. Still, it is known that they are not tendered for face value, and it is a different ball game altogether. Canadian Silver Maple Leaf is another example of it. Millions of Canadian Silver Maple Leaf coins and American Silver Eagle are purchased as investments each year.
The rising industrial applications of this grey metal and the rising demand by geometric progression are another reason for offsetting the ratio calculations. For the first time, 2016 has seen a few electronic industrial giants enter forward contracts with the silver miners. Investment in silver is often made as a hedge against trouble in the stock market, as is essentially the “Gold Jr.” The stock markets this year have been very jumpy, helping silver and gold prices glitter. As investors wanted to put their money in something more tangible.
For long-term concerns, it can be said that; silver’s price may be an indicator of gold, although not very precisely. But the trends show silver has even more room for upward mobility in terms of percentage gain.