Why? Let us count the reasons.
1. Demand exceeds supply. Annual production is about 900 million ounces per year, including recycling. Industrial usage alone will rise to 660 million ounces by 2015. That leaves only 240 million ounces for coinage, central bank purchases, and investment. The latter category is huge; as of 2010 holdings of physical silver to back up exchange-traded funds was 577 million ounces.
2. Silver is undervalued compared to gold. The historic silver to gold ratio is 16 to one. The geological silver-gold in situ reserve ratio is 17.5 to one. The current silver-gold ratio is 51 to one. The implied price if silver reverts to its historic ratio with gold at US$1,600 an ounce is US$100 an ounce. The actual closing price on Thursday was US$31.73.
3. The silver price is artificially low. There has been speculation for some time that the price of silver has been kept deliberately low by market manipulation.
- Read the full article by Guru Focus here: