The Wall Street Journal-20080122-Silver Rises- Still Plays Second Fiddle- Metal Is Also-Ran As the Price of Gold Surges to New Highs
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Silver Rises, Still Plays Second Fiddle; Metal Is Also-Ran As the Price of Gold Surges to New Highs
Silver often is in the shadow of gold when it comes to precious metals, and its also-ran status over the past year has continued as gold prices race to highs.
That isn't to say that silver prices haven't strengthened in the commodity markets' recent rally. Silver has moved up since the end of 2006, but its gains are lagging behind those of gold.
At last week's record listed by one price vendor as $914.40 an ounce, spot gold was up 44% from the end of 2006. Meanwhile, silver's recent 28-year high of $16.60 was up 29%. Friday, nearby January silver rose 20.8 cents to $16.138 on the Comex division of the New York Mercantile Exchange. Nearby but lightly traded January gold futures settled up $1.30 at $880.80 an ounce.
Gold and other precious metals have been aided by a weak dollar undercut by Federal Reserve rate cuts, fears of inflation, global tensions and haven buying owing to worries about the credit markets.
U.S. markets were closed yesterday for the Martin Luther King Jr. holiday. Prices of both metals fell in London along with a broad selloff in financial markets.
Bill O'Neill, principal with Logic Advisors, said much of the rally in gold has been from a "flight to quality" during subprime concerns and a plunge in the dollar. Silver tends to draw less buying based on this, he said.
"Gold should in fact outperform," Mr. O'Neill said. Silver tends to draw more speculators, while gold tends to draw more of an investment element, he added.
The gold/silver ratio -- determined by dividing the per-ounce price of gold by the price of silver -- has increased to 55 from around 49 at the end of 2006, meaning gold outperformed. The average since 1970 has been 54, said Gijsbert Groenewegen, managing partner of Gold Arrow Capital Management.
"To be honest, [the ratio has] been balancing out the movements we saw the year before," said James Moore, analyst with TheBullionDesk.com.
Silver prices rose more than 40% in 2006, helped in large part by the launch of the first major silver exchange-traded fund by Barclays Capital. Investors can buy iShares that trade similarly to a stock but are backed by metal stored in vaults, thereby increasing actual physical demand. The gold/silver ratio fell from around 58 at the end of 2005 to 49 at the end of 2006.
In the past two months, open interest for gold futures on the Comex division of the Nymex has risen more than silver's, said George Gero, vice president with RBC Capital Markets Global Futures. Open interest is the number of outstanding positions in a contract at the end of the day's trade.
"People are saying, 'If silver is poor man's gold, we might as well buy the gold,'" Mr. Gero said.
Silver could do better, though. "My view is that silver is still the underdog of the two metals," Mr. Moore said.
