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9.22.2010

Time To Get Physical With Silver Dollars

Silver's Breakout
Equedia Network Corporation
It finally happened. 
Through months of struggle, silver has finally managed to crack the $21/oz mark.
In past newsletters, we touched on the positive signs of why silver, along with gold, should outperform and continue to see new highs. After months of what many believed to be market manipulation (see the Silver Conspiracy), silver finally took the edge and surpassed the $20 barrier.
Although a few dollars above recent highs may not seem important, there's much more to it than meets the eye. The Gold to Silver Ratio (GSR) has finally broken the technical downside. This not only signals a strong push in silver prices, but it also means an increase in both industrial and investment demand for silver.
For the last five thousand years, the GSR has been somewhere around 16 to 1. This means that one ounce of gold can buy 16 ounces of silver. Coincidentally, that ratio remains relatively constant for the amount of silver versus gold in the world. For every ounce of gold in the ground, there is roughly 17.5 ounces of silver(see the Silver Conspiracy.)
In recent years, the average gold and silver price spread has been about 60 to 1. If silver where to catch up with the GSR that has been around for the last five thousand years, silver prices today should be nearing $80/oz. Of course, this isn't going to happen anytime soon. However, silver is now trading even better than gold. Shorts and sell-offs are increasingly shallow and silver is now managing to close higher when gold has been lower.
That's because silver is not just a safe haven play. Unlike gold, which goes up during times of great political, economic, and social strife, silver is also an industrial metal that can climb with a growing economy - not to mention the possibility of price manipulation 

The Debt Debacle
We already know that US and worldwide government debts are climbing. This should mean an increase in the price of both gold and silver. But that's where silver has its advantage. As economies around the world recover and grow in the next year, demand for industrial use silver will, too. This means when market environments appear safer, silver will continue to climb - but gold may fall (see The Human Metal.)

The Double-Edged Metal
Silver is one of the most-versatile metals, with new silver patents exceeding those for any other metal, leading to new industrial uses every year, and ever-increasing demand. Even the monitor of your computer screen or that new HD flatscreen you were just watching, has a few ounces of silver in them.
Meanwhile this same industrial demand is strengthened by the biggest surge in investor demand for silver in several decades (see the Tip of the Iceberg.)
The trace-uses of silver result in vast quantities of silver being "consumed" every year, permanently reducing the amount of available silver in the world - unlike gold, where all quantities ever mined are available or recoverable (see Tip of the Iceberg.)