The problem of silver's oversupply solved by gold's price
I was reading a Bloomberg article yesterday which explained that this year is the 8th year of oversupply for silver. These large stockpiles of silver are part of the reason that silver prices have remained relatively subdued due to gold prices. Take a look at the gold/silver price ratio and you can see that gold is trading at a very high price in relation to silver. The implication is that silver prices are due a correction higher based on the ratio.
Why is silver so over-supplied?
Well, this is because silver is always the bridesmaid, but never the bride. Silver is often mined as a byproduct of copper and gold mines. Wanted gold, but found silver. Ok, put it in the silver pile. The silver pile has grown and it is still dug up even as demand falls as it is a byproduct.
Why will silver still probably rise?
Silver may be only be the bridesmaid, but when gold is the real bride silver wins too. Silver has a very close relationship with gold. It has a daily correlation of 0.8 and a beta of over 1.3 from the last 5 years.
Therefore, expect gold's ascendancy to drag silver higher along with it as long as the market situation remains the same.
High Risk Investment Warning: Contracts for Difference (‘CFDs’) are complex financial products that are traded on margin. Trading CFDs carries a high degree of risk. It is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved. Seek independent expert advice if necessary and speculate only with funds that you can afford to lose. Please think carefully whether such trading suits you, taking into consideration all the relevant circumstances as well as your personal resources. We do not recommend clients posting their entire account balance to meet margin requirements. Clients can minimise their level of exposure by requesting a change in leverage limit. For more information please refer to HYCM’s Risk Disclosure.