Silver: The Other Gold

Robert Hsu, February 27, 2008

For more than 4,000 years, silver has been regarded both as a form of money and store of value. You may not know this, but the beauty, weight and lack of corrosion made silver one of the earliest metals to be used as a medium of exchange, especially in ancient China.

From year 1500 to 1800, Peru and Mexico produced approximately 85% of the world's silver. During that same period at least a third and some people would say over 40% of all that silver eventually wound up in China. Today, the demands of modern technology have used silver in everything from electrical components to medicinal treatments.

Silver often tracks the price of gold because of substitutable demands, although the price ratio between the two metals can vary. Similar to gold, the price of silver has more than doubled in value against the U.S. dollar since December 2001. Since September 2005, silver has risen fairly steeply; it started around $7 per ounce but touched nearly $19 this week. Year to date, silver has gained nearly 30%, far better than the 15% increase in gold prices. But silver still has a long way to challenge its record high of nearly $50 per ounce reached in 1980.

Asian demand for silver has been a major driver in the price of silver. In 2006, China posted strong industrial silver demand growth at 10% and Japan recorded an equally impressive 10% increase. Indonesian and Chinese silver jewelry fabrication grew by 18% and 16%, respectively. Today, Peru is the world's largest silver mining country, followed by Mexico, China, Australia and Chile.

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