Silver Advances to Most Expensive Versus Gold Since 1983 on Inflation Risk

Silver climbed to its most expensive level versus gold since 1983 as rising inflation spurred by commodity shortages, economic recovery and turmoil in the Middle East bolstered demand.

An ounce of gold bought 37.15 ounces of silver at 2:32 p.m. inSingapore, compared with an average of 62 in the past 10 years. Silver for immediate delivery has more than doubled in the past year while gold gained 27 percent, cutting the ratio from a high of 70 in June.

“Silver has yet to hit a record which means the ratio will decline further” to levels unseen since 1980, when the billionaire Hunt brothers hoarded the metal, said Hwang Il Doo, Seoul-based senior trader with KEB Futures Co. “Investor and industrial demand is strong as the economic recovery is under way and inflation becomes a worry.”

The jobless rate in the U.S. unexpectedly fell to a two- year low in March. The European Central Bank may boost interest ratesthis week to damp inflation that is likely to exceed its target through 2011 as the regional economy strengthens.

A United Nations index of world food prices jumped to a record in February, contributing to riots across northern Africa and the Middle East that toppled leaders in Egypt and Tunisia. Corn prices traded near a 33-month high today, while crude oil inNew York hovered near the highest level since September 2008.

Silver Outperforms

Silver for immediate delivery gained as much as 0.6 percent to $38.7875 an ounce, the highest since 1980, and traded at $38.6575 an ounce in Singapore. The cash metal reached a record $49.45 an ounce in January 1980. Gold advanced 0.2 percent to $1,436.97 an ounce.

Silver is the second-best performer in the UBS Bloomberg CMCI commodity index in the past year. Holdings in exchange- traded products backed by the metal climbed for a second day on April 4, rising 22.9 metric tons to 15,395.52 tons, according to data compiled by Bloomberg.

“Funds are very bullish on silver,” said Ng Cheng Thye, Singapore-based director with Standard Merchant Bank Ltd. “It looks like silver will approach $45 an ounce quite soon. Gold will find it difficult to cross the $1,460 level because the momentum is not there.”

Investors have bought precious metals to protect their wealth against risks spurred by civil unrest in the Middle East, the Japanese nuclear crisis and financial turmoil in Europe.

Sales Double

Muammar Qaddafi’s diplomatic outreach failed to entice European leaders, as Italy rejected a reported cease-fire proposal and recognized the rebels’ interim council as the nation’s only legitimate government. In Japan, Tokyo Electric Power Co. began dumping radioactive water from its crippled plant into the sea so that it would have a place to store more highly contaminated water.

Silver will rise to $60 an ounce in the next three years, while gold will climb to $2,000 an ounce, according to Aaron Smith, managing director of Superfund Financial (Hong Kong) Ltd. and Superfund USA Inc. Smith correctly predicted record copper prices in November and a month later rightly anticipated that silver would outperform gold.

American Precious Metals Exchange, one of the largest U.S. gold and silver dealers, said yesterday its sales may double this year. Sales of items including 1-ounce gold coins and 10- ounce silver bars are “on pace” to reach as high as 15 million units for the year, Chief Executive Officer Michael Haynes said. The dealer shipped 7.5 million items last year.

Industrial applications such as electrical switches and batteries accounted for 50.3 percent of silver demand in 2008, compared with 40 percent five years earlier and 51 percent in 2007, according to The Silver Institute.

(Source: http://www.bloomberg.com/news/2011-04-05/silver-advances-to-most-expensive-versus-gold-since-1983-on-inflation-risk.html)