I recently heard a commentary by David Frum on American Public Media’s Marketplace radio show (text of it is here) that had my eyebrows raised by the end of it. It was on the rising price of silver.
Since you’re dealing with precious metals day-to-day, it may not come as news to you that the price of silver has increased 69 percent in the last six months. It was news to me, I admit.
What’s more interesting than just its recent rise, though, is silver’s relationship to the price and supply of gold. Geologists estimate that silver is roughly 17 to 18 times more prevalent than gold. So it makes sense that the price of silver has historically been about 1/16th the price of gold — not exactly proportionate, but close.
But with the rise in gold prices these past couple of years, what did silver do? Not that much, really. Back in February 2010, the average silver price was 1/69th the price of gold.
So the question is: Is silver too low, or is gold too high? Well, sure, in retail jewelry in a tough economy, many would agree that gold’s been too high, which is why so many INSTORE readers report success in gold buying, frustration in gold-jewelry selling and an increase in silver jewelry purchases.
Speaking macro-economically in his commentary, Frum suggests a growing silver and gold bubble.
On a level that affects you, it could mean that the cost of those silver pieces that have been at your plumb price point could soon be going up — and that price has a ways to go, if silver balances out with gold’s price. As I write this, silver is $29.11 an ounce, making it 1/47th the price of gold. (If it were at its historic price differential of 1 to 16, it would be about $86 a ounce.)
Probably not worth planning a silver-buying event just yet, but the price of silver is definitely something to keep an eye on.