Monday, December 06, 2010

Silver Price Nearly Doubles In A Year

While most commodities, including oil and gold, have increased in value the latest year both in terms of euros and U.S. dollars are at or near the highest levels since the summer of 2008, silver actually stands out as the commodity that has increased the most.

It is in U.S. dollar terms up by roughly 70%, from less than $18 per ounce to more than $30. By contrast, gold is "only" up about 20% in terms of USD. And since the euro has dropped by more than 10% in the latest year, the gain is even more impressive in terms of euros, up from €12 per ounce to $23, a 90% gain.

What then is behind this big rally. The most important factor is that it benefits from inflationary trends, something which increase highly flexible commodity prices in general and precious metals in particular, as they are demanded as inflation hedges.

Another reason is that the price of silver has long been, and arguably still is, more  depressed than the price of gold. Silver is actually still 40% below its brief 1980 peak even in nominal dollars, while gold is trading 75% higher than its 1980 peak. So silver's stronger rally is arguably to a large part simply a case of catching up with gold's stronger performance.