Lathia Rubber Mfg. Co. Pvt. Ltd

*The current mining ratio is only about 7:1 mine worldwide

*Cryptocurrencies has taken the shine off gold and silver metals as stores of value

It appears the gold and silver markets have finally awakened to the fact global inflation is rising and probably won't be just transitory. Gold prices have been trending higher since late-September and silver prices last week hit a six-week high. History shows hard assets like the precious metals become more in favor as an inflation hedge when consumer and producer prices are rising. But the ascent of cryptocurrencies has likely taken the shine off silver and the other precious metals as stores of value.

Silver could outperform gold as an inflation hedge. It did during the late 1970s leading up to its January 1980 when the price hit $50.36 per ounce (31.10347 gram) as the Hunt Brothers attempted to corner the silver market. After years of depressed prices, silver exploded to a slightly lower peak in 2011 at $49.82. The most recent high came in early February 2021, when the price reached $30.35.

Since then, silver has made lower highs and lower lows, but the price remained above the $20 level at the end of last week. Silver tends to experience explosive and implosive price action. In 2021, the nearby COMEX silver futures contract has traded from $21.41 to $30.35. The high came in early February, and the low in late September.

In 2021, market participants have had more opportunities in other asset classes when compared with precious metals. Some dismiss that move as artificially induced by the Hunt brothers, who tried to corner the silver market. They shouldn't ignore the potential for another mad scramble for scarce supplies of silver fueled by broad and deep global demand rather than a handful of futures market speculators.

Crowd sourced campaigns spearheaded by silver enthusiasts are already afoot to force the hand of paper futures traders who engage in naked short selling that artificially suppresses silver spot prices. For now, silver remains relatively cheap versus most financial assets. In March 2020, silver became historically cheap versus gold, sending the gold to silver price ratio to a record 130:1.

The gold to silver ratio currently checks in at about 73.52:1. It still has more room to narrow in favor of silver during a precious metals bull market. At the 1980 peak, the ratio came close to hitting 16:1, often referred to as the "classic ratio" observed going back to ancient times.

Meanwhile, the current mining ratio is only about 7:1 mine worldwide are producing seven ounces of silver for every one ounce of gold. Silver is a highly volatile precious metal that tends to move higher or lower on the back of investment demand. It's a by-product of gold, copper, lead, and zinc production. Only around 28% of output comes from primary silver mining, while 72% comes from by product mining projects.

The silver bulls have the overall near-term technical advantage. Prices are in a three-week-old uptrend. Silver bulls' next upside price objective is closing December futures prices above solid technical resistance at $25.

(Disclaimer: This analysis is only for educational purpose and is not and must not be construed as investment advice. It is analysis based purely on economic theory and empirical evidence. Readers are requested to kindly consider their own view first, before taking any position.) Date: 25-10-2021

Jayant Agro Organics Ltd

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