Press Release



March 17, 2009 – New York, NY – The Hennessee Group LLC, an adviser to hedge fund investors, believes silver is currently underpriced relative to gold and is therefore advising clients to accumulate positions in the precious metal. Charles Gradante, Co-Founder of the Hennessee Group, stated “While we see both gold and silver as safe haven investments, particularly as a hedge against the longer term risk of hyper-inflation, we believe gains in silver will outpace gold.” Gradante added, “The gold to silver ratio has reached elevated levels in recent months due in large part to gains in gold.  And while we expect gold to continue experiencing gains, we anticipate silver to outperform on a relative basis and lead to a reversion in the gold to silver ratio.”  The Hennessee Group believes the supply/demand dynamics of silver present a strong case for the appreciation in the precious metal going forward, specifically due to its increased global industrial demand (caused by emerging markets) outpacing supply. 

Gold and Silver Prices Chart

The Rise of the Gold to Silver Ratio
Gold benefited from a flight to quality in 2008 as the economic crisis deepened and investors fled risk assets for the safety of gold and treasuries; two of the few assets classes to experience gains for the year.  Silver on the other hand suffered along with most other commodities over the same time period as fears of the deepening recession mounted.  For the year, gold gained approximately +6% while silver dropped over -25%.  Charles Gradante stated, “The dispersion in performance between these two precious metals has led to a drastic widening in the gold to silver ratio from 50x in early 2007 to its current level of 72x, the highest level since 2004.” 

Gold and Silver Ratio Chart

Supply/Demand Story of Silver
Despite recent concerns regarding weakening economies and a subsequent pullback in silvers’ price, the Hennessee Group believes the long term supply/demand story for silver remains intact.   Charles Gradante stated, “Silver is unique relative to most other precious metals.  The demand for silver not only stems from its use as a raw material to manufacture jewellery and silverware, but also from its numerous industrial applications.  In fact, over 50% of silver demand comes from the industrial sector.”  Gradante added, Silver is utilized across a wide range of industries including imaging, electronics, jewelry, coinage, superconductivity and water purification.  While we could see a slowdown in demand in the near term due to the current global recession, we believe longer term demand will continue to rise and support higher silver prices.”   An additional source of demand we believe will continue to impact global demand for silver is the market for silver exchange traded funds (ETF).  The iShares Silver Trust, created in 2006, has grown in popularity in recent years and has led to tremendous growth in the amount of silver backing the shares issued to investors.  Growth in the silver ETF market is likely to continue going forward and will put additional strains on the supply/demand dynamics for silver. 

Silver ETF Chart

The supply side of silver is unique as well in that only a small percentage of mines in the world are pure silver producers, rather silver is typically a by-product of mines mainly engaged in extracting lead, zinc and copper.  According to the 2008 World Silver Survey, supply generated due to mine production has grown from 1998 to 2007 by +24%, while demand due to industrial applications has grown nearly 44%, creating a shortfall of nearly -20%.  The Hennessee Group anticipates seeing similar shortfalls between supply and demand as the economy recovers and industrial demand accelerates.

World Silver Supply and Demand

Source:  Silver Institute and GFMS Limited

(in millions of ounces)













Mine Production












Industrial Applications






















* Note:  Supply and demand contain other components which are not included in this chart.   

The Hennessee Group believes that the breakdown in the gold to silver relationship that has occurred in recent months is creating a long term investment opportunity.  Charles Gradante stated, “There has been a recent pullback in commodity prices, particularly precious metals.  However, the Hennessee Group believes this is a short term correction in a longer term upward trend, that is likely to be exacerbated by the recent aggressive fiscal and monetary actions, and the impending inflationary pressures they will create.” 


Any opinions, estimates and forecasts offered in this article constitute the author’s judgment as of the date of the materials and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information contained in this article to be reliable but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only and it is not intended to provide and should not be relied on for investment, accounting, legal or tax advice.

About the Hennessee Group LLC
Hennessee Group LLC is a Registered Investment Adviser that consults direct investors in hedge funds on asset allocation, manager selection, and ongoing monitoring of hedge fund managers.  Hennessee Group LLC is not a tracker of hedge funds.  The Hennessee Hedge Fund Indices® are for the sole purpose of benchmarking individual hedge fund manager performance.  The Hennessee Group does not sell a hedge fund-of-funds product nor does it market individual hedge fund managers.    For additional Hennessee Group Press Releases, please visit the Hennessee Group’s website.  The Hennessee Group also publishes the Hennessee Hedge Fund Review monthly, which provides a comprehensive hedge fund performance review, statistics, and market analysis; all of which is value added to hedge fund managers and investors alike.

Description of Hennessee Hedge Fund Indices®
The Hennessee Hedge Fund Indices® are calculated from performance data reported to the Hennessee Group by a diversified group of over 1,000 hedge funds.  The Hennessee Hedge Fund Index is an equally weighted average of the funds in the Hennessee Hedge Fund Indices®. The funds in the Hennessee Hedge Fund Index are derived from the Hennessee Group’s database of over 3,500 hedge funds and are net of fees and unaudited.  Past performance is no guarantee of future returns.  ALL RIGHTS RESERVED. This material is for general information only and is not an offer or solicitation to buy or sell any security including any interest in a hedge fund. 




2007 Hennessee Group LLC, All Rights Reserved.