Ag s/b good 2009..... I think silver could outperform gold this year.
It's easy to see why gold is outperforming. The global financial system is in crisis. And gold has a superior reputation as an insurance policy compared to silver. So, gold is holding up very well. It's only 12% off its high of last year, while silver is down about 42% from its high.
But you saw the chart of how silver has outperformed gold in the past month. That's because silver acts like gold on steroids: It falls further and faster than gold, but that means it can rebound even faster.
And silver is undervalued compared to gold ...
In the first half of 2008 an ounce of gold bought between 50 and 55 ounces of silver. In October and November this ratio moved out to 84 silver ounces to one gold ounce and has now moved back to 72. I think this ratio will return to the more historic 50-55 level.
Now, let's also factor in how 80% of silver is mined as a byproduct of other metals mining. Many base-metal mines are being shut down or production cut back — tin, copper, zinc, and so on. This should reduce the supply of newly mined silver in 2009, even as investor demand is ramping up.
Sure, silver is an industrial metal as well as a base metal, so a global recession is reducing demand for silver in industrial applications. But if investor demand heats up for silver the way it's heated up for gold, it could overwhelm any drop in industrial demand.
I think gold should have a great year. I also think silver could have an even better one.
And that should be a good environment for stocks.