Silver is often called the poor cousin to gold. Like gold, silver is found deep inside the earth’s crust and is often mined by large mining companies. The difference between the two is its usage. While gold is usually bought as an investment, silver is bought for its industrial uses. Companies buy silver to produce other things like jewelry and cutlery among others.
For more than a year, silver has been an underperformer. It has lagged gold. Year to date, while gold has risen by about 3%, silver has fallen by 2.25%.
Traders like to look at the premium between gold and silver. Today, silver is trading at $16.5 while gold is trading at $1,344 meaning that gold’s premium is about 84%. This is 27% more than the ten-year average of the two metals.
This divergence is closely watched by investors as an indicator of the status of the economy and the logic is simple. In a booming economy, silver tends to do well as more people buy products made from silver. At the same time, gold tends to be weaker because people don’t need a safe haven when the economy is booming.
As shown below, silver has risen from a low of $15.61 and risen to a high of $17.68. In recent months however, the commodity has erased these gains to trade at about $16.5. It has been on this range for a few days, which means that it could break out in either direction any time now.