Investing In Bullion, Make Gold A Priority (silver price, platinum)

                      Though it's true that for much of history the gold to silver ratio was 12, that trend ended more than half a century ago at a time when gold and silver prices were a lot lower than they are today.  In recent history the ratio has been somewhat erratic ranging from a low of just over 30 (April 2011 gold avg $1474, silver avg $42) to a high of 85 in 2008;  During this period there was a lot of downward pressure on both ironically coming from one of its biggest buyers central banks - rising interest rates cause money to flow out of gold and into other sectors of the economy but gold still stood out, maintaining a price at least 75% of its high, silver however presently trades at only 40% of it's 2011 high of $50.

During the last recession the price of platinum fell below the price of gold, an occurrence that usually only happens during crises  - the last time it happened was in the 1970's when the world's main economic drivers, the US and Europe were going through recessionary periods of low growth, high unemployment, high debt levels and oil prices.

The more recent inverse relationship between gold and platinum dominated the period of August 9, 2011 to January 2013.  Prior to that, since 1986 the price of platinum always exceeded gold with the exception of very few brief periods but even then the difference was marginal.  What this means is that the current economic climate is not as rosy as it's made out to be - the factors now driving gold closer to platinum are the same ones that come into play during times of economic uncertainty (central bank buying, inflation leads to lower confidence in the dollar, causing people to jump onto the bullion bandwagon).

Platinum versus Gold

For bullion buyers, the platinum group metals (pt, pd, rh) provide an interesting alternative to gold but a couple other key factors to consider may make gold the safer option.  In 2008 when rhodium hit $10,000 an ounce before hitting rock bottom a year later (2009 average $1500) investors lost interest in the white metal.  In a healthy economy, demand for platinum and palladium will still be there since both rely on industrial (catalytic converters) and high end markets (white gold plating, platinum jewelry);  however, yearly demand in general is not nearly as high as it is for silver or gold;  2012 platinum demand was about 6 million ounces, 7 million ounces for palladium which is only a fraction of the 155.4m ounces of gold, 1.16b ounces of silver consumed.

2012 exit year - Global reserves of platinum group metals total 2.328 billion ounces (2013 Mineral Commodity Summaries: 66m kg, annual production represents 0.6% of this) versus 1.799 billion ounces for gold (annual production represents 5% of this).  This doesn't sit well with me given that production of gold is some eight times greater than all platinum group metals combined.  As an investor what this tells you is that it's a lot easier to raise mine output to either match higher demand /or to put downward pressure on the price, than it is for gold.  At current prices, gold is just as rare as the platinum group metals but demand remains many times greater.  This is precisely why the rhodium crash of 2008 could never happen to gold (rhodium supply increased substantially as miners saw an opportunity to sell at higher prices but it turned out that demand was not nearly as strong as anticipated).  Platinum may be brighter but from an investment perspective gold still outshines it. 

Demand for platinum has a shiny future - light vehicle production is expected to increase by 13.6% over the next three years, with each vehicle needing a catalytic converter containing four grams of platinum and palladium what that amounts to is an additional 1.54 million ounces of pt/pd demanded.

More Industrial uses for Silver (photovoltaics, rfid), Gold Reserves Increase with Price

    Higher gold prices mean higher resources because lower cutoff grades become economically viable (producers can absorb higher production costs without sacrificing margins). Osisko Mining on November 7 raised its inferred resource estimate solely due to the higher market price of gold. Osisko said that @ $1,000/oz production was economically viable at an average grade of 0.72 g/t but @ $1,800/oz the lower cutoff grade results in a 103% increase for inferred resource (from 5.32M to 10.79M ounces grading 0.51g/t or 29% smaller than at $1,000). Osisko's 3Q production was up 172% for gold (to 73,814 oz) and 147% for silver (to over 40,000 oz) between quarters. At Centerra Gold the higher price of gold led to a five-fold increase in third quarter earnings per share (35c vs 7c) while its revenue was up 132% to $278.4 million. The 500% change in earnings came mostlly due to the change in gold price (avg realized up 37.8% to $1705/oz) since sales increased 68.5% to 163,283 ounces (3q).

As for silver, production has risen in response to higher prices. From 1990 to 2007 demand for silver exceeded mine production by more than 1.5 billion ounces (The Silver Institute) but since then, production has met demand (recycling also helps balance demand - about 250M ounces of silver is recycled every year with all silver used in photography contributing back to supply this way). About 15% of silver production comes as a by-product of gold mining so higher gold prices, even if silver doesn't follow suit, will automatically increase silver production. Over history 45 and 40 billion ounces of silver has been produced (42.62B up to 2004) compared to about 6 billion ounces of gold. (goldeagle.com:The World's Cumulative Gold and Silver Production)

According to the US Geological Survey in 2009 silver mine production totalled 697.6M ounces a 23.86% ten year growth (annual basis) at the same time the average price rose by a factor of 2.2 while total supplies amounted to 922.2m ounces. Between 2010 and 2020 it is estimated that production will increase by 100-150M ounces while industrial demand alone increases by more than 250M ounces so supply deficits could become a factor again in the near future even though higher prices are causing more companies to build new mines/initiate exploration even in areas that have high production costs. Most of the increase in demand for silver is coming from industry (in 2000 it accounted for 35% of total demand but by 2009 it was over 50%). In 2010 silver supplies increased 14.60% to 1.0568b ounces but mine production was only 2.45% higher (contributed 70% of supplies in 2010 compared to 77.9% the year before). Net government sales of silver was nearly tripled to 44.8m ounces. On the demand side, industrial applications demanded 20.7% more in 2010 than in 2009 (difference of 83.6m ounces).

Silver Uses
Silver is a highly conductive metal (without much oxidation) and that makes it popular for use in electronics.
- RFID technology used in id tags. The antenna portion of it that is scanned and read is where the silver is used. The antenna can be scanned up to 15 meters away. Each tag uses over 1% of a gram of silver however billions of the tags are produced every year so it adds up).
- Jewelry remains the second largest source of demand at 167m ounces (2010) which represents a 5% increase on the year.
- Photography including x-ray film (however demand is falling due to digital replacements). Demand fell by 8.3% in 2010 to 72.7m ounces accounting for only 6.885 of total demand.
- Silver Coins : 8-10% of demand and increasing with people looking to invest in precious metals and gold perhaps becoming too expensive for some (bars aren't included, there are about 700M ounces of silver in bar form (large bars) that's up from just over 200M ounces in 2009).
- Medical Equipment & products such as pacemakers. Coins and medals increased 22.3m ounces in 2010 to 101.3m ounces (up 28.23% on the year).
- Photovoltaics/Solar Panels : The mirrors are coated with silver (specifically the energy conducting silicon cells). With solar energy use growing both in Europe/America & China greater demand from this sector is a sure thing.