Swapping gold for silver

Primary gold investors versus silver investors are not exactly alike.

Swapping gold for silver is a trade always worth considering, especially when the ratio blows out as wide as it is now. Portability is one obvious reason for the reverse, as long as premiums match up in the transaction. But the main advantage to this kind of swap is that silver almost always tends to cover more ground percentage-wiser and faster when it is allowed to move in a significant way.

When the price ratio of gold to silver extends out into its higher ranges, the relationship tends to be called into question. But even when the ratio approaches 30:1, or even closer to its historic ratios, the relationship should always be at the forefront of investor’s minds. However, it's not as always as simple as the paper price ratio.

A more interesting ratio is the relative buying measured primarily by U.S. mint data. Silver retail coin demand has been much stronger relative to gold, though obviously the overall dollar amounts pale in comparison.

Within the silver demand lies important ratios. We have seen a steady increase in jewelry demand (much larger than coin) relative to industrial demand, which could have the effect of pushing the market back toward shortage very quickly.

Nevertheless, one needs to consider the following as a review:

Rarity

Although it is not revealed by the price, investment-grade physical silver is actually as rare as gold; thanks to the amount that is melted, smelted, and mixed each year for a variety of consumer applications. And that is, of course, due the sheer size of the paper derivatives that mask the true value.

Supply is under constant constraint by decades of artificially low prices that have made primary silver mining the most risky of ventures. Most silver is mined as a byproduct of base metals and gold production.

Volatility

Due to the fact that most silver produced each year finds its way to a factory, the amount of silver that arrives on the retail market is only a small percentage of the total actually produced.

With such small amounts of the metal circulating, plus a massively managed and colluded price determining mechanism, silver is prone to volatile swings that occur with even the smallest shift in demand.  In fact, the majority of the volatility can be blamed on the battle between speculators and bullion banks at the COMEX.

Although the volatility is short-lived, silver can move twice as much as gold in a single day, and the shiny metal is most likely to explode in price with any institutional activity.

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