the gold report interviewed mining analyst richard gray:
TGR: Gold has gone up about 21% this year. Silver has gone up 61%. Is silver being driven by other elements?
RG: Yes. Silver is somewhat of a unique metal. The simplest way to put it is when the economy is good, it trades closely with the gold price—usually on a 50:1 ratio. During these times it is treated more like a precious metal, a metal you invest in to protect your money. When the economy is weak, like the second half of 2008, it trades more like a base metal, where supply and demand has more of an impact. We saw the ratio rocket up to 80:1 last fall. Right now we're at 65:1, which is right in the middle of the bull market and bear market scenario here and that probably fits as well.
On the supply-demand aspect of silver; it is consumed (whereas gold is typically not) and it is usually mined in deposits that are primarily lead, zinc and copper. So it's got a bit of a two-headed look to it. While the increases of 61% this year for silver and 21% on gold are true from January 1st, if you go back to July 31, 2008, that's when things really just fell off a cliff. From July 31, 2008 to today, gold is up 20% and silver is basically flat. So picking a time horizon, silver has outperformed, but also if you go back to where things were fairly stable and normal, the last time gold-silver traded at around a 50:1 or 55:1 ratio, if we ever get back to that, silver hasn't really done much since then. For all the same reasons you can say gold could go to $1,500 or $2,000, you could also say silver could go to $30 or $40; but I just don't see it because silver mines will start popping up all over the world if silver goes through $20, and you're going to get an increased amount of supply—more so than gold. A lot of silver is going to hit the market, and I don't think the demand side can really take it all up and keep that price high.
As with the current price of gold, I think the silver market at $17 or $18 an ounce is quite healthy. I just don't see these kinds of runs because there are a lot of silver deposits out there, whether they're part gold-silver, part silver-lead-zinc. They get built or they get turned back on, and it becomes more of a supply-demand issue for silver anyway. So, you're right—silver has outperformed. Is it overbought here? I don't think so. I think it's probably right where it should be given the uncertainty of the overall market.
http://seekingalpha.com/article/170413-richard-gray-on-the-two-real-drivers-behind-gold-price?source=yahoo
