According to Sprott Asset Management CEO, Eric Sprott, Silver is the investment of the decade. Not only is it likely to reach $50 an ounce by the end of the year but, he says, over the next three to five years, it’s performance is likely to treble that of gold’s.

Speaking on Mineweb.com’s Metals Weekly podcast, Sprott said, “We’ve been huge proponents of gold over the last 11 years, and we’ve been involved in silver over that same time period but beginning about a year ago it became extremely evident to us that the investment demand for silver was massively understated.”

This move also appears to be occurring in India, where festival celebrants, deterred by high gold prices have been buying silver  ornaments as gifts. (See: Silver puts gold in the shade.)

He adds, as a result of this, the ratio between the two metals is likely to get back to a more “appropriate” level around 16:1 – it is currently around 37:1 and only in June last year it was sitting around the 70:1 level.

“If one looked at the silver and gold sales as an example of the US Mint, so far this year, people have put the same dollars into silver as they’ve put into gold – which can’t carry on with the price being 38:1 – you just can’t have the same amount of money going in.  We see the same thing in the ETFs – the silver ETFs have been growing while the gold ETFs so far this year, have declined,” he says.

One of the main reasons for this, according to Sprott is that more and more people are viewing gold, and now silver, as the reserve currency and given the state of the world, there is a shift from paper to hard currencies.

It is not, however, just Sprott who sees this shift toward hard currencies. The state of Utah, recently signed a law which has made it the first U.S. state to recognize federally issued gold and silver coins as legal tender.

Asked why there is likely to be such a large relative outperformance, Sprott says, “the fundamentals for the two metals are entirely different.  There is huge industrial demand for silver, there’s not much industrial demand for gold.  It’s interesting when you look at how many dollars of gold are produced in a year and what’s available for saving, and how many ounces of silver are produced per year, and how many of those ounces are available for investment, the ratio is something like there are 10 times more gold available for investment in dollars every year, than there is silver.  So if the guy is just as happy to own silver as gold, the fundamentals are going to diverge markedly here.”

With the growing industrial uses for the metal in, among other areas, photovoltaic cells, and the medical field (for its antibacterial properties) on top of the growing investment demand, higher prices could result in some substitution but, according to Sprott this is not really a concern as the dollar value of the silver is almost immaterial to the total cost of the product.

Any clouds to the silver lining?

Asked if there are any potential hiccoughs to the run for silver that he is predicting, Sprott says that while there are a few things that would cause him to change his mind, he does not really see any of them coming to pass any time soon

The first cloud, according to Sprott would be fiscal and monetary responsibility by governments and central banks but, he says, this is certainly not evident at present and would go so far as to say, ” ever since we had QE1, the reason to own gold and silver has just changed materially here because of the irresponsibility of the central banks in the world

The other potential hiccough, he says would be some kind of massive mania type blow off, ” you have to take your best guesses when something like that might end – I don’t see it as being anywhere near that stage at this point.”

And, finally he says, “The other thing that would have an impact is if, ultimately, gold and silver in fact are named reserve currencies – then we will all have accomplished what we’re after and you may or may not need it neat because it’s now money.”

Where to from here?

According to Sprott Silver will move to $50 dollars this year before powering ahead, “If you ask me in the three to five year time frame, obviously I think it’s going to go north of $100 simply because we’ll get that 16:1 ratio and I certainly see gold going a lot higher, so that’s my outlook here and therefore the rewards for owning silver and the equities will be quite outstanding.”