Why Silver Prices Haven’t Returned To Their 2008 Levels

If you’ve been following the commodities market even with just a casual eye you might have noticed that around mid February of 2009, Gold prices spiked back up to $993.20 which nearly matched what it was selling at back around the same time in 2008. If you looked at silver you saw that it wasn’t even close to what it was selling at in early 2008; Silver was selling at $20+ an ounce! If you looked at Silver on the surface level you could easily draw the conclusion that it greatly underperformed compared to gold because although Gold almost reached its early 2008 levels, silver came nowhere close to matching its 2008 prices. So if you drew the conclusion that Gold performed much better than you’d be completely wrong. Let’s compare the numbers, if you take Gold’s lowest point over the past 60 days at 868.70 and compare it to its highest price at $993.20 you’ll see about a 14% increase. Not bad over 60 days, eh? Well, only if you bought it at its lowest price and sold it at its highest. But let’s just say that you did. Now let’s compare silver. In the last 60 days silver reached a low of $11.89 an ounce, and a high of $14.41 an ounce. Speaking percentages only, silver swung 21%. That’s right, silver outperformed Gold! If you look over a 6+ month spread the difference is even more measurable.

So why did Gold return to its 2008 levels but silver didn’t? Here’s the simple answer, in early 2008 silver was overhyped and its price overinflated. When the commodity bubble finally busted, silver fell and fell hard. Its price spiraled quickly down from $21 an ounce down to a low of $8.92. (Hopefully you weren’t one of those purchasing at $21 an ounce). Silver wasn’t the only commodity that sank like a stone though, anyone here remember paying over $4 a gallon for gasoline? Yeah, that one sank hard too. We quickly found out how overinflated that price was. Gold on the other hand didn’t fall quite so hard. Prior to the big increase in 2007-2008 to the above $1000 price point Gold was sitting at the $650 mark. When it started to slide back down in mid to late 2008 it only plummeted to a low of $709.50 which was pretty close to its starting point. It just didn’t seem as sizeable on the surface. So around October of last year both Silver and Gold were hitting their low points and then came the steady climb back upwards as week after week of bailout talks kept piling up and one bad wave of economy data after another came rolling in. The upward surge in both Silver and Gold finally halted when the stock market began its rally in late February. As any commodity investor knows the general rule of thumb is that commodities perform inversely to the stock market. If the market is down then commodities are generally up and vice versa. Lately the market has been performing fairly well and Gold and silver have been trickling back down. How much farther down will they go or will they start going back up again? For the short term, that will depend almost entirely on the stock market.

When will Silver return to is $20+ mark? When Oil returns to its $140+ a barrel point.