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Will the value of silver increase?
Predicting the silver price
The main concern of any investor before parting with their hard-earned money is whether or not their investment will offer a good return. Of course the difficulty is that all assets are prone to rise and fall in value as external forces make them more or less desirable. Unfortunately, none of us can be certain of what will happen in the future, although one can make educated guesses. Understanding the nature of silver and its market gives us an idea of the events and circumstances that can make the value of silver go up or down, enabling us to make predictions which, while still not necessarily accurate, are at least based on well-informed judgement.
It is well known that the value of precious metals typically move in ‘the opposite direction’ to many other,
more traditional assets such as currencies, savings accounts or equity. The intrinsic value of precious
metals such as gold, silver, and platinum makes them very popular investments in times of economic or
geopolitical turbulence, when confidence in the safety of assets backed by governments or financial
institutions is low. Demand will therefore pour into the precious metals market while currencies and other
assets are devalued, pushing up their prices significantly.
However the reverse is also true. When the global economy is performing well and investors are able to
make and save money comfortably through the likes of banking, hedge funds, or other financial assets,
the price of gold and silver will often fall. Precious metals do not offer regular yields or interest, making
them less attractive when investors are feeling bullish on riskier assets.
This is especially true for gold, the majority of whose demand comes from bullion investment and, of
course, jewellery. However, while silver does reflect gold in many ways, it also has its own set of unique
characteristics that cause its value to fluctuate much more frequently than its yellow counterpart. An
enormous amount of silver is used in different industries including electronics, photography, solar energy
and more. As such, demand for the white metal is in part dependent on the performance of these
sectors of the economy.
Looking at the gold: silver ratio is another way of looking at whether or not the value of silver might be due
to increase. The ratio shows us the proportional relationship between the two metals’ values and is a good
indicator of whether silver might currently be undervalued at any given moment. There is said to be 16 times
more silver on the planet than gold. You could therefore argue that the two metal should naturally be valued
at a ratio of 16:1, however this is not the case. Since 1970, this ratio has fluctuated between around 16:1 and
100:1. When the ratio is high, then, we might predict that silver is currently undervalued and due to increase
in value towards its historical average and when it is low, then its price might be about to fall.