Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Gold to Silver Price Ratio and the Surge in Silver Jewelry Buying

Commodities / Gold and Silver 2012 Jul 03, 2012 - 04:02 AM GMT

By: Dr_Jeff_Lewis

Commodities

Best Financial Markets Analysis ArticleSome would say that the gold to silver price ratio is meaningless.

Others debate whether it will revert back to historic values maintained at a level mandated by law or policy, or if it will be based on actual above and below ground supply. Above ground investment grade silver is reversed, with five times more gold, while estimates indicate that nine times more silver than gold remains to be mined.


Yet where does the actual gold/silver ratio matter the most? Perhaps a look at price discovery at the margin in the jewelry markets would be illuminating since price and perception of value are always at play.

Another Look at Price and the Sticker Shock Effect

In the mind of the mainstream media, gold is expensive, even though it may be a relative bargain on an inflation adjusted basis or given the questionable value of paper money.

Few people would think twice before placing a $5 item in their shopping cart, but almost everyone would question their buying habits at a $10,000 price point.

As prices rise higher, consumers and investors tend to seek out alternatives, even if the higher priced item is still a relative bargain. From the perspective of consumption, but not investment, the price of an ounce of gold seems high to most people.

Furthermore, as gold prices head higher, jewelers have been moving towards selling lighter pieces with less gold and more silver content in an effort to reduce the “sticker shock” effect on their customers.

Gold’s Price Relative to Silver’s

Based solely on changes in metals prices, a $100 bracelet bought in the year 2000 would cost more than $600 today.  At prices in between those two price points of $100 and $600, plenty of jewelry buyers have had second thoughts about their prospective purchases.

To continue to attract shoppers and keep demand at acceptable levels, jewelers typically lower the karat weight of gold and increase the amount of silver in the pieces they offer.

For example, a 22k gold band made of gold and silver is just as yellow but is nearly 10% less expensive than a 24k band. To a shopper, the difference between a 22k and 24k ring is typically insignificant, but to silver investors, this difference is huge.

After the fall of bimetallism and the disappearance of commodity backed paper currencies, the gold and silver ratio lost some of its former stability.  Largely due to the world-wide depletion of government silver stockpiles, the ratio that was previously constrained by law became considerably more volatile,.

Recently, the gold/silver ratio has once again approached record highs since the price of silver has been depressed much further than the price of gold since April 2011.

Confirming the Gold to Silver Ratio

The retail jewelry marketplace demonstrates that the gold to silver ratio still has some fundamental backing outside of its former legally-defined levels. 

Basically, when gold gets too expensive relative to silver, jewelers simply add more silver to reduce the per-item price and mitigate the resulting sticker shock to consumers. As the market for gold jewelry has cooled off since 2005, silver is quickly taking gold’s place as a jewelry metal.

Should the economy rebound fully to its 2007 boom levels, an accompanying surge in consumer jewelry purchases will increase demand for silver to fill the gap in affordability left by the sky-high price of gold.

Furthermore, with silver production routinely running under the level of gold production, any change in consumer preference from gold to silver will be multiplied by the differences in available metal stock and production supplies.

With the tide turning in the jewelry market, silver investors can expect not just higher silver prices, but higher gold prices as well.

**

For more articles like this, and to stay updated on the most important economic, financial, political and market events related to silver and precious metals, visit www.silver-coin-investor.com

By Dr. Jeff Lewis

    Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com and Hard-Money-Newsletter-Review.com

    Copyright © 2012 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in