“BAM!” is what Emeril, the chef, says on his cooking show. And “BAM!” is what I felt when I saw the price of silver top the $30 mark on Monday. Lately, listening to the news has seemed surreal. The Chairman of the Federal Reserve, Ben Bernanke, has been quoted about “fears of deflation.” Yet here is $30 silver, where just a couple months ago it was half that price. What is a jeweler supposed to do?
I recently talked about rising metal prices with Hugh and Alan Bell, two of Rio Grande’s Directors. Hugh and Alan have decades of experience in the jewelry supply business, growing up with Rio Grande, and they have a lot of insights about what might be going on.
There are several signs that silver might continue to rise in price. No one knows for sure, of course, but here are some facts worth noting:
- These days there are more people investing in silver than gold. Somewhere close to 400,000,000 ounces of silver have been purchased by electronic trading funds.
- The relative value of silver and gold are often shown as a ratio. Check out this chart:
- I am told that the Earth has roughly 20 times more silver than it does gold. This means the ratio in the chart above for the year 1970 was reflective of that natural balance. If silver were to return to a 20:1 ratio as compared to today’s prices on gold, we would see $70 silver!
- Gold is generally recovered after its useful life. Silver, on the other hand, is being used in applications from which it is unlikely to ever be recovered. For example, many photos use silver – which will never be recycled for the silver. Bandages are using silver due to its medicinal properties – again, unlikely they will ever be recycled for the silver. Electrical switches use silver, due to its unique electrical properties, and while these may eventually be salvaged, the amount per switch is so small, they may not.
Depressing, eh? But there are some good points to consider too. Even though silver is expensive relative to the past, it’s still affordable. While we may yearn for the days of $5 silver, $30 per ounce is still far cheaper than the $1400/oz. that gold commands. Further, customers will accept silver as a precious metal.
Hugh and Alan had a couple of suggestions on how to cope with high metal costs:
- Base your sales price off of the replacement cost of the materials used to make your piece of jewelry. Our website includes the current spot price of silver, gold, and platinum at the top of each page.
- Try to buy as much metal each day as you sell. That way the cost of the metal is carried through by your daily sales, and you can see your real margins.
No doubt about it, these are challenging times for jewelers. But while silver is more expensive than we have traditionally thought it ought to be, it still remains a precious metal that the public likes, and it trades at prices far below what gold has commanded since the 1970’s.
No matter what, we at Rio are sharing this journey with you!