It's like trying to find gold in a silver mine...
-- Elton John and Bernie Taupin
I have not written on silver since March 2005, even though both the commodity and silver-mining stocks have risen and fallen substantially since then. Let's redress that right now and see what has been going on with the white metal.
First and foremost, silver has taken a beating in recent months, as have nearly all physical commodities. It has lost 50.4% of its value on a rolling-contract basis from its high on the date of the Bear Stearns bailout, March 17, 2008, through Dec. 12, 2008. Gold, in contrast, has fared better with a loss of only 19.1%. The only physical commodity in the Reuters/Jefferies CRB index to gain over that period has been live hogs, which after years of admonition have been the bulls on Wall Street and may one day exact revenge upon the bears.
To hear precious metals' many fans tell it, this was not how it was supposed to be; the metals were to be a refuge in parlous times such as this. But, as I noted back in August, gold failed in this task. Moreover, we have six decades of data indicating that the producer-price-index-deflated price of silver climbs at about 0.01% per month, nothing more. We are now at real prices reached first in December 1967. How and why that should be a refuge from anything is not clear.
One Brief Shining Moment
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Source: CRB-Infotech CD-ROM |
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While it is easy to understand why silver often is associated with gold in investors' minds, the simple reality is the two metals are produced in different mining operations and have vastly different final uses. Gold's principal use is to be reburied in above-ground vaults as a store of value; silver has a significant number of industrial uses.
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