Silver and Gold will move in opposite directions in 2011

Silver usage in modern electronics is almost non-existent. The vast majority of the metal used is either copper, aluminum, tin, and lead with an extremely small amount of gold used to improve connectivity. The reason that gold is preferred over silver as a PM in electronics is that it does not react with oxygen. Silver tarnish is not very conductive.

Where silver did see an uptick in usage is in solder used in home plumbing. At one time common tin lead solder was used to solder copper plumbing. This was changed to silver solder (solder replaces lead) due to fears of the lead leeching into the water and causing issues with lead poisoning. This is why they tell you to run the water in older houses to flush it out before drinking from it. If you ever decide to solder your own pipes, it's important to buy silver solder and not tin/led solder which is still used on wiring. (due to cost)

 

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Actually, silver is not used in plumbing solder at all. I know for a fact, since I have a few rolls on hand. Silver solder mainly today is only used, (for household purposes), on air conditioner units since it alone can withstand the extreme temperature differences. Silver used to be used for electrical soldering in homes but now almost no soldering is done inside of a home. Solder for plumbing is now an acid solder, not silver.

I do not know to what extent silver is used for soldering industrially.

 

Acid refers to the flux used, not the composition of the metal. Silver solder is not used for electrical connections. Silver solder was developed as an alternative for plumbing. However it should be noted that these days, most new homes don't have much if any copper plumbing so it's kind of a moot point.

 

I would have been dumbfounded if the "industrial use" had NOT decreased, what with a crushing recession reducing nearly every sort of industrial/manufacturing activity, followed by a drastic spike in the price of silver as a raw material.

 

Both thermal and electrical, actually. But in both cases it's only a bit better than copper, and given the staggering difference in price, I think it's only going to be used where price is no object (space, military) or where the quantities involved are microscopic.

 

Yes the flux is acid, but plumbing solder at Home Depot can be bought all day long for about $7-8, so I seriously doubt there is, or has been for 20 years, any silver in it. I have replumbed both my houses, rentals, and friends about 20 times so I have bought a lot of it over the years. Yes, you are correct new houses have PEX usually, so the issue is mostly moot.

I was an electrician and installer of central airs in college so I know about those solders as well. Electrical solder used to have about 30% silver but it was phased out in about 1988, and most soldering in residential homes phased out about the same time. Its cheaper and easier to use wire nuts than to solder. Silver solder like I said is still used for high temperature soldering of the outside copper piping of central airs, but you only use about 2 inches of the stick if you are any good for the whole unit, so I would say about $5 worth at todays markets, about a dollars worth back then. Still, a pack of ten silver solder sticks even then ran $60 or more, so you kept track of every one of them. The soldering was with acetelyne, since a common propane torch cannot get it hot enough. If someone was in the business of scrapping central airs, they need to pay attention to those copper joints if they get a lot of them.

 

I'm pretty sure that house wiring has relied on punch contacts and wire nuts for a lot longer than that, at least according to my 1970s-vintage home-improvement books. And electrical solder was always tin-lead, 63/37% for the lowest melting point, 60/40 for cheaper stuff. I think the only thing silver solder was used for was higher mechanical strength, high-temperature stability, and maybe better bonding to certain metals. With high-silver-content solder, you're really brazing more than soldering. (Thus, the need for an acetylene torch.)

A quick check of Wikipedia says that the Japanese have moved mostly to tin-silver-copper solder. Looks like the electronic silver solders are mostly 2.5-3.5% silver, not enough to sharply spike the cost of products, but certainly enough to create demand when you add it up across all the products being made.

 

"Arbitrary metric" is a term that should be looked up (and understood) at the same time as one researches the gold/silver ratio.

I think medoraman's definition of "Fact" is very different than mine.

 

Indeed. And all printed circuit cards are soldered with tin/lead. Silver solder usage in electronics is non-existent. As you noted, in high power situations, connections are almost always mechanical in nature. Silver solder was developed as an answer to lead in plumbing. Otherwise it really doesn't provide much value add.

 

Well, actually, you're overlooking the "was" vs. "is". Solder for electronics manufacturing was all lead-based. Now, with RoHS (Reduction of Hazardous Substances) and other directives, legislation, and market pressures, manufacturers have largely moved to lead-free solder. Much of this lead-free solder contains silver, although at lower concentrations (2.5-3.5%) than the traditional "silver solder" (30%+).

 

Did you actually read what you posted? That is an European Union guideline, not a law, and they leave it up to the member countries to decide what they want to do. It does not apply to the US or anywhere else in the world. Furthermore in that article,where there is a discussion of lead free solder, silver was found not to be the best alternative. Geez.

Maybe you have concluded that manufacturers have moved to lead free solder, but that article doesn't suggested it nor does it suggest that silver was the replacement.

 

I presume the industrial uses are down at least in part due to the recession. As long as total demand exceeds total mine supply, the price will continue to rise. The speculative part doesn't bother me at all. Everyone here should expect the price of silver to collapse at some point. I think the collapse will happen from much higher levels and probably end up around $20. Everyone has to decide for themselves what they expect and how to react to it. On the other hand, there is always the possibility that the numbers are wrong, perhaps by a lot, since large producers such as China probably don't publish reliable numbers for either supply or demand.

 

The price is rising because of speculation on the silver COMEX. To put it into perspective the US Mint sold something like 34 million ASEs or 34 million ounces of silver over the last year. (more or less) In comparison there are over 70,000 contracts just for March delivery on the COMEX which is equivalent to 350,000,000 ounces and total open interest is over 635,000,000 ounces. It's assumed that at most, there are only 50,000,000 ounces of silver available to cover these contracts so the vast majority of the price movement is due to naked shorting. It really doesn't have anything to do with the actual physical demand.

Someone is going to get their back broken. It will be either the folks trying to take advantage of the situation or the ones supplying all the unbacked paper.

As I said earlier, if anyone of these players opts out of the COMEX then the price of silver will collapse. Those who bought the physical metal at current pricing will be left holding the bag.

 

Manufacturer's often standardize their products for a global market (this is especially true with electronics), so the most stringent standard is likely to one being followed unless we're talking about differentiated electronics products.

Oh, and it is mandatory. The RoHS directive took effect on 1 July 2006, and became law throughout the EU (it is required to be enforced in each member state).

 

Sure, I read what I posted; for extra credit, I even read what you posted:

I posted that link not to "suggest that silver was the replacement", but to define RoHS for those who haven't heard of it. To "suggest that silver was the replacement", I'd link to something like Wikipedia's article section on lead-free solder, which says:

You may, if you wish, suggest that "two thirds of Japanese manufacturers" of electronics is not a significant portion of the market. It would be good for another chuckle.

 

The link you posted also says the Chinese and the USA continue to use tin-lead in solder and the Chinese have exempted any lead regulation specifically for electronic. However, if you actually read the articles, you will notice that lead is added for its wetting properties. Take it out and the manufacturing process becomes more expensive and you can't place components as close together. You comments on the Japanese market is a fallacy even if it did provide you some self humor. 2/3rds of the Japanese manufacturers is not 2/3rds of electronics. Maybe you didn't realize that Japanese consumer manufacturing has been outsourced to China. They focus on high value low volume applications now.

BTW, I don't consider wikipedia to be definitive. It can be edited by anyone. I mention it because you provided it as some sort of proof without apparently even reading it.

In any case this is a divergence. The original point I was responding to was the notion that silver is going to go up in value because of it's use in electronics. I will continue to contend that in electronics its use is non-existent and this has not been proven otherwise. Silver is being run up on the paper COMEX and not due to more Ipods, TVs, and phones being churned out.

 

Some might use the ratio in decision making processes... but I doubt the Market Makers do. They're smarter than that. Thus, the notion that some people foolishly use a meaningless ratio has little weight.

I tend to agree with Cloudsweeper's first post. They are two independent commodities whose prices have little or nothing to do with each other, and even less to do with what people did (or did not) do in ancient Greece or Rome. Or early America.

 

Howdy folks,

Just read the thread and was most intrigued. I've been playing the metals via investments and bullion for 20 years. I once owned SLSLX a long defunct silver mutual fund. Didn't make any money but that was before the present bull market that started in 2001/2.
Everything I've ever read has the g/s ratio at between 15 and 20 to 1; and other than recent times for most of known history. Granted, much was by govt fiat with exchange rates and all, but it was also a market driven metric.

Today the markets are very different. As you mentioned, gold and silver are neither officially a currency of any country so you've got market forces driving the ratio. You've also got two very different metals (and markets) with gold more a store of value and silver more an industrial metal. Very different demand curves and profiles. India was mentioned where it's a cultural thing. It's the womens social security, if you will and all gift giving revolves around gold. The chinese have long loved silver as a store of value, but were also banned from owning gold until recently and the pent up demand . . . . Oh, and throw in all of Chindia's nouveau riche buying bling.

As for the gold/silver ratio, it matters because people think it matters and behave accordingly. I use it as a guide to fine tune my pm investments. Currently, I'm trying to add silver miners relative to silver bullion and silver relative to gold. The pure play would be to ratio your holdings of gold and silver to match the existing ratio. As it chanages, you rebalance. I was passing thru Ft Campbell last spring and stopped a coin store to window shop. Discussed this with the owner and he felt strongly you needed to be down at 50 to 1 at the time. I wasn't quite there, but it was a good year. ;-)

I don't know how the bullion ETFs have impacted the market - the jury is still out. It's like the gold/xau ratio. Another long used metric of the balancing of mining stocks to bullion. We know that miners and bullion mirror each other over time. However, they can diverge greatly in the short run and the gold/xau ratio is a measure of that divergence. It's been waaaaayyy high - 7's and 8's when the equilibrium point has always been 4.0. Under that you sell stocks and buy bullion. Over 5 and you sell bullion and buy stocks. Ah, but I really thing the bullion ETF's like GLD have screwed this up and have moved the break point higher. feh. I know it means you should be long mining stocks relative to bullion.

And keep in mind, please that all of this is on the margin and simply fine tuning some investments.

peace,

rono

 

A few thoughts regarding the above statements...

1. I've read this too, but it happens to be untrue. There are many precious metals bloggers/authors out there will few qualifications for what they are saying. They seem to copy from each other, so the false information tends to get repeated until it becomes common knowledge. But it's still wrong.

2. It is very doubtful that the big money in the gold and silver markets use this ratio. It is just entertainment for the general public.

3. If you match your holdings to the ratio, you will always own more of the metal that is higher priced and less of the metal that is lower priced with no regard to the market characteristics of each. This is generally bad strategy. In my opinion it is better to analyze each metal separately and buy whatever seems to have the better investment profile regardless of the ratio. Something might be a bargain because it is cheaper, or maybe it is cheaper because it deserves to be cheaper. It is the function of analysis to determine which is the case.

Good luck.

 

Cloud makes an excellent point about your idea of holding to the ratio. This is a very bad idea, just like portfolio balancing. THe difference between buying 50/50 stocks and bonds in 1900 and holding them, versus rebalancing them every year to maintain 50/50 split is about a 1400% yield loss. Portfolio balancing, (which is what you would be doing in your example), would force you to minimize potential gains. Just to throw this out there, if you wanted to use the ratio at all, determine what ratio makes sense to you, and when you feel gold is undervalued, buy only it with new money, and vice versa. Just throwing that out there, not thinking its very practical, since it makes no room for platinum or any other metal you may with to invest in.