Silver Price Gains To Outpace Gold: 2 Key Factors

Lately, gold and silver have been hot commodities, and for good reason. Both of these commodities are considered to be safe haven investments, and let's face it, the global economy is scary at the moment. As a result, investors and consumers alike are looking to precious metals as a way to keep their money safe. However, there is a big debate in the precious metals industry. Some believe that gold gains will outpace silver while some believe that silver gains will outpace gold. In my opinion, I'm on the silver outpacing gold side. There are two key reasons that I maintain this opinion. Today, we'll talk about those reasons.

Reason #1: Recycled Supply Points To Strength In Silver

We've all seen the signs, heard the radio commercials, and even seen the banner ads. There are companies out there that buy discarded jewelry. This is actually a key piece of supply in both gold and silver. Considering that the prices of commodities are heavily dependent on the law of supply and demand, recycled materials are incredibly important to watch.

With that said, when we look at the difference in recycled gold and recycled silver, something interesting starts to emerge. Here's what we're seeing in recycled gold and silver jewelry at the moment...

• Silver – When it comes to silver, consumers recycled about 551 metric tons of silver jewelry in the year 2015. While that may seem like a huge amount of silver, when you compare this to silver jewelry demand, it's clear that this is a very small figure. With silver jewelry demand coming in at 7,045 metric tons, recycled silver only accounts for about 8% of global jewelry demand. At the end of the day, the amount of money consumers receive for recycled silver isn't enough to make a drive to the pawn shop worth while.

• Gold – When it comes to gold, recycled jewelry is a big thing. In fact, In the year 2015, about 1,000 metric tons of gold jewelry was scrapped for cash. This is a massive number considering that global gold jewelry demand comes in around 2,415 metric tons. With these numbers in mind, 41% of gold jewelry demand is covered by scraps.

Considering these figures, demand for silver will likely outpace supply far faster than demand for gold will outpace supply. With so much gold being recycled, supply is being boosted. While both metals will see gold, as this supply factor starts to show, we'll likely see silver gain a bit faster.

Reason #2: The Gold To Silver Price Ratio

Silver and gold are both commodities, precious metals, and safe havens. The reality is that the demand factors associated with these commodities are about the same. As a result, the prices of the two should move in tandem. However, that's not what we've seen.

At the moment, for every one ounce of gold that is being mined, nine ounces of silver are mined. As a result, hypothetically, silver should be trading around one-ninth the price of gold. This would put silver well over $100 per ounce. We're not anywhere near that. At around $20 per ounce, there's plenty of room in this spread, showing that silver likely has a larger upside potential than gold.

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