Third to reason’s most people find silver an interesting investment. First, it’s a heck of a lot cheaper then gold. Second, silver volatility tends to be much higher than gold. This article explores that second reason, silver volatility.
If Gold is Senior Debt, Silver is Junior
The funny thing about silver buyers, some say, is that speculation is the cause of volatility, Which causes more speculation. Oddly, the mentality seems to be that owning less metal, i.e. gold, is not in fact more.
Throughout human history, Silver has always taken second gold. Just look at the Olympics. Traditionally, there has been a fixed relationship, e.g. three parts silver for one part gold. Over time, however, gold has become more scarce, and silver not so much. For that reason, people tend to find tracking the gold to silver ratio quite interesting.
The trouble with silver speculation is that when times get tough for precious metals, Silver tends to be the last to recover. Over the last several decades, silvers racial to gold has been in the mid 50s. This year, it hit the low 80s. That means that investors are less confident in silver and gold.
Speaking of investor confidence, and another way of looking at the future is through COMEX Silver futures. These are contracts traded for future delivery of the commodity. These having decreasing since Q1 2016. Another point is that the amount of contracts treated has fallen by over 10%. This suggests that people are less confident taking long bets on metals prices. Strictly speaking, since both prices and interest are decreasing, there is nothing unnatural or unusual occurring.
A Non-Speculative Element
Over the last four decades, several factors have pushed down the price silver. These include attempts to corner the market that failed, and changes in industrial demand. The latter factors, really technological demand, reminds us of a number of applications for silver. For example, it useful in circuits contained in nearly every piece of electronics.
A Speculative Element
More recently, silver has found increasing interest in retail metals investors. Unlike gold, it is not hoarded to as great extents by central banks. Despite this, it has been responsible for vast economic fortunes, such as that of Spain in the late 1800s. The challenge for investors is that silver is much more plentiful than gold. It is mind as a byproduct, often, of other minds such as copper.
The recent United States election and Federal Reserve policies on overnight lending rates (that dictate interest rates) have caused more speculation. Investors face risk in that today’s rates are held so low it may be dangerous. Investing in metals providers a sort of safety net against the devaluation of currencies. Since central banks engage these policies to prop up the economy, metal investing is widely seen as betting against a long or short term recovery. In Europe, many countries have already set up negative interest rates. If these we’re to emerge in North America, global markets could lose faith in long-term prospects.
Silver Volatility is Key
So what makes silver so interesting? The very volatility that can make it scary to many investors, Is seen by others as the opportunity to make a much larger return. In fact, one of the greatest shocks can be how quickly silver will move. Over the past two years, we have seen Silver double or half its value in a matter of months.