Silver outperforming gold as precious metals prices rise

Silver has been one of the best performers in the metals sector over the past week, with the latest boost coming from the better than expected Chinese import and manufacturing data.

Weakness in the dollar, together with what appears to be a boost to Chinese industrial growth on the latest data, with a reduction in talk of Fed tapering has led to a mini-surge in the gold price, while silver has done even better living up to its tendency to outperform gold on the up.  For those who follow it, the gold:silver ratio has come back from around 65-66 to closer to 61 and if the silver price rise continues there could be scope for the ratio to fall further still.

See: If you believe gold’s going to go up, buy silver

Indeed we seem to be seeing a resurgence in momentum in silver buying.  Recent reports point to a huge increase in silver demand in India as the government attempts, only partially successfully, to stem gold imports by implementing sharp tax increases on them.  Silver imports thus appear to be rising sharply as there are no such import tariffs applied to them. Meanwhile outflows from silver ETFs which took place when the prices tanked have also staged a really strong recovery, sales of U.S. silver bullion coins have also remained very high indeed and have been at record levels suggesting investor interest in both East and West is running strong again. 

See: Silver motorbikes and staggering silver imports in India

and 2013 American Eagle Silver Bullion sales continue to shatter records

But the latest news from China has given silver yet another boost. Silver demand is both from the industrial and the precious metals investment sectors and China currently ranks as the world’s second largest silver consumer after the USA, and is in the top three silver producers with output close to, or perhaps even matching World No.2 silver miner, Peru if taking into account the substantial amount produced from imports of base metal concentrates for smelting and refining there. If Chinese industrial growth is indeed beginning to recover sharply, and with the better economic data coming out of the U.S. then silver’s industrial usage may be entering a good growth phase.  But this still remains a big if, as some fear these economies are not growing as fast as government data would suggest.

Chinese silver production and consumption have both been rising at an annual double digit percentage rate.  There were fears that a Chinese slowdown would cut this rate of increase, so the news that the latest Chinese data was reporting stronger industrial growth, imports and investment gave a big boost to metal prices, with the volatile silver price perhaps moving most of all.  Indeed the silver price rose by over 4% on Monday alone and around 10% over a period of four trading days.

The silver investor, however, needs to be cautious, because not only does the devil’s metal tend to rise faster than gold when the latter moves upwards, but also tends to fall faster if the gold price slips and the current period of gold price volatility may not be over yet.  Every statement suggesting that the U.S. Fed is going to start tapering seems to knock the gold price heavily, allthough it does seem to be recovering from the knockdowns faster than before.  But if gold is volatile and silver even more so (gold on steroids as it has been described) this could be an interesting time (as per the supposed ancient Chinese curse) for investors in both metals.


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