Tuesday, May 20, 2014

Why Is Silver So Cheap?

Silver is one of the most essential metals on the earth. Silver is rare and has many qualities that make it an indispensable material for manufacturing and technology. What I can not understand is why it is so cheap when priced in dollars or Federal Reserve Notes.

Did you know that silver is the most reflective element on the earth? I did some reading and it appears that aluminum is actually more reflective at certain wavelengths (short) but overall, silver is the king of reflectivity making it the top choice in solar energy applications as well as mirrors and more. It is shiny, a greyish-white color, and its gloss reflects 95% of light when it is polished

Silver is the most malleable and most ductile metal except for gold which is the. Silver the metal with the highest thermal and electrical conductivity level. This makes it extremely important for usage in electronics, military applications and hi tech applications like cars, phones, batteries, weapons, smart phones, computers, etc...

Silver historically has been used as money. Silver was used as money before gold and more often throughout history than gold. Silver was used in United States coinage up until 1964 and is still used in United States Mint Proof sets and American Silver Eagles.

Silver has historically traded at a ratio of 16:1 in terms of gold. Meaning you could buy 16 ounces of Silver for every ounce of gold you could buy.  Today this ratio is way out of whack. As of this writing, the price of silver $19.41 per troy ounce while the price of gold is $1294.60. This puts the current Gold to Silver ratio at 66.7. This is purely ridiculous as this means you can buy 66.7 ounces of silver for each ounce of gold you can buy with the same amount of dollars (Federal Reserve Notes).

If you take a look at how much silver is mined each year compared to how much gold is mined each year you will find that the ratio is currently about 9 to 1, or 9 ounces of silver is produced for every 1 ounce of gold. This would be a much more understandable ratio than the current ratio of nearly 67.

Another interesting thing to think about is that all or almost all of the gold ever mined is still available in the form of jewelry, coins or bars. This is estimated to be around 5 billion ounces of gold mined in history and currently available in above ground refined form. If you look at Silver, it is estimated that 60 or 70  billion ounces have been mined throughout history, but it is estimated that only 1 billion ounces are available in above ground refined form. In this respect, silver in available form, is actually 5 times rarer than available gold. This is because silver is also an industrial metal and is consumed in industry for items discussed above as well at more that were not discussed.

So once again I will leave you with the question: Why is silver so cheap? That is a topic for another day, but I have a feeling that silver will shine brightly once again and that the price relationship between silver and gold will once again come back into a more reasonable balance. This means that silver must rise in price in terms of its big brother gold.