Will Silver Outshine Gold In 2009 ?
Key commodities such as Gold and Silver both had a volatile 2008 with gold doing better overall than silver. Analysts are now trying to predict where gold is headed and the views differ quite a lot from UBS’ prediction that gold will hit USD 700 in 2009to Citigroup’s overly optimistic prediction that gold will reach USD 2,000 in 2009.
Volatility has always surrounded these two precious commodities with silver showing the greatest ups and downs in value, but while most analysts focus on gold and its future prices, some experts are pointing to gold’s baby brother silver as the commodity to consider for investment in 2009.
This post looks into what some experts and analysts have to say about gold and silver prices for the new year.
Christopher Barker of The Motley Fool is emphasizing the fact that the historical average ration of 1:20 between gold and silver prices is not in place at the moment pointing to, he argues, that silver could be in for a bigger surge in prices than gold:
Sources like Peter Schiff and Citigroup have suggested that gold may reach $2,000 per ounce in 2009. Legendary investor Jim Rogers recently declared his intention to exit all dollar holdings. Personally, while I also see gold reaching $2,000 at some point during this historic run, I am not convinced it will come quite that quickly. The ratio of gold to silver prices stands near 80-to-1, suggesting silver may also have a nice recovery in store as it trends back toward an historical average ratio of about 20-to-1.
Barker remains optimistic overall on both gold and silver price development for 2009 and also points to the fact that lately in Q4 some mining companies’ shares increased by more than 100% and would hence also be potential investment targets besides the metals themselves, however, he offers here a word of warning:
Mining is a capital-intensive industry, so a constrained global credit market is forcing many companies to scale back exploration and development activity in attempts to shore up balance sheets. Combined with a nasty dip in base metal prices, which are generally key to keeping gold and silver mining costs within economical ranges, these challenges create something of a minefield. Despite my bullish outlook for the precious metals themselves, I still see the outright failure of some mining companies as a distinct possibility, and I suspect some uninspiring fourth-quarter earnings results could challenge shares in the near term. For the quality miners, though, I believe that substantial upside leverage to higher gold and silver prices awaits.
My Foolish criteria for selecting quality miners include:
- A close examination of the balance sheet. Reasonable debt ratios may be acceptable in cases where production growth is a given, but otherwise a debt-free miner like Goldcorp (NYSE: GG) looks enticing.
- Critical mass. Some junior miners may ultimately enjoy the greatest leverage of all, but their smaller scale often reduces flexibility in adapting to challenging conditions. Tread carefully for now!
- Operations in geo-politically stable regions. Agnico-Eagle takes the cake.
- Low-cost of production. Yawanna check out Yamana for gold, and Silver Wheaton for silver. The quality of ore grades are a factor as well.
His conclusion, however, is very optimistic on behalf of precious metals:
Until the fundamental outlook for the U.S. dollar reverses course, I maintain that gold and silver investments offer the best safe-haven characteristics available anywhere. If a 2% gain for gold outperformed the equity markets in 2008, imagine what a truly precious bounce in 2009 could achieve.
Lawrence Williams of Mineweb.com is also cautiously optimistic on behalf of both gold and silver for 2009 but points out that for silver the complexity of its price development and dependants is far greater than for gold as silver has multiple usage:
Silver is a bit of a different animal, but does tend to ride on gold’s coat tails – but in a far more volatile manner given its production patterns and industrial usage. Unlike gold, silver fell back 57 percent from peak to trough and will likely continue to be far more volatile than gold in the months ahead. If gold does surge, then silver may do even better in percentage terms. If gold falls there is the possibility silver will do even worse.
To an extent silver as a commodity is a bit of a red herring – or it is at the moment. While more and more uses are found for the metal in emerging communications and bacterological fields and supply may well be primarily dependent on byproduct output from zinc and lead mining, where huge closures are taking place, the main drivers remain in its position as an investment vehicle and in the jewellery market. Price movements remain very much tied to gold and it is in the performance of the latter where sliver’s potential for price increase, or decrease, really lies – despite the views and the protestations of the true silver bulls who are, perhaps even more evangelical in their outpourings than the gold protagonists. If you have a positive view on gold, then buy silver and hang on for the roller coaster ride could be the path here!
His 2009 predictions for gold and silver are very much in sync with those of Mr. Barker:
Overall I suppose one should be cautiously optimistic on the outlook for gold and silver in the year ahead. Gold fundamentals look relatively strong and prices seem to be well supported above the $740 mark which should limit the downside risk. Upwards the sky would seem to be the limit, but the reality is that gold has moved pretty cautiously through the recent financial quagmire and is likely to continue to do so. $1,000 gold still has to be in prospect sometime in 2009, and once reached may well be maintained, particularly if the dollar starts to fall again.
Predictions from Golfseek.com also speak of increasing gold prices for 2009 but they are even more optimistic about silver:
Silver will do very well – Silver has been a neglected and almost abandoned orphan in the economic storm. The common wisdom says that economic activity is slowing, so industrial metals like silver will have reduced consumption and should be sold. Past readers of the Optimist will attest that my views are neither common nor wisdom, so I am free to take a contrary approach. Just as fewer houses being constructed reduce the need for copper wires, and fewer automobiles being built reduce the need for platinum in catalytic converters, the quantity of silver needed for many industrial uses is also likely to be reduced. In the case of silver, however, the reduction in industrial demand is likely to be more than offset by a greater reduction in the supply of silver which is produced as a by product of base metals mining. As base metal prices and production plummet from reduced economic activity, the sharply reduced supply factor should provide a positive tone for silver prices. Also, if the odd silver sidestep cycle continues in 2009, then it is possible that the price of silver could target $25 per ounce in the next 12 to 16 months.
Gold will hit a new high price – Gold continues to track the expanding “cornucopia” channel I constructed two and a half years ago. As the current credit crunch dissolves into higher inflation, I think it reasonable to expect gold to once again race to the top of that channel. I am hopeful that the U.S. dollar price of gold will approach $1,250 within the next 12 to 16 months.
Commodityonline.com quotes David Morgan for saying that whilst silver is doing quite well, it is not performing as well as gold:
Both silver and gold markets have become victims of the credit crisis, which actually started in August of 2007. Things really got going to the downside on the annual rollover of August 2008 and that has continued. If you look at gold irrespective of the dollar—in other words, vis-à-vis other currencies—it’s doing quite well. And if you look at gold in U.S. dollars vis-à-vis any other market such as the Dow Jones, the S&P 500 or the oil market, it’s actually holding up better than most markets.
Silver is doing not as well as gold, but better than the base metals. And since silver is really an industrial metal and a monetary metal, you would expect it to perform during recessionary times as it has—better than the base metals but not as good as gold.
Mr Morgan, who is the founder of the Silver-Investor.com and publisher of the Morgan Report,
also subscribes to silver having a far greater potential in terms of price increases than gold and his reasoning is:
I believe that the supply of silver is so small relative to the population base that it won’t take much new buying to carry silver far, far higher. You have to remember that silver hit $50 an ounce in 1980 and there was roughly four times more silver available above ground than now. Also, the money supply was about one-seventh the size that it is now. So if you use those facts—that the silver supply, instead of being 2 billion ounces of fine bullion, is less than 500,000 ounces and that the money supply, M1, is about six or seven times greater—that shows you a high, high potential that silver could certainly go up.
This blog will curiously follow the prices of both gold and silver but from the above experts’ opinions it seems very likely that whilst gold will remain an attractive investment, silver may be an even better one !
Alternative investments, Gold Investment, Investment Management