BERTRAND MAROTTE
RTGAM



MONTREAL - Chart 1: Silver-Gold Ratio Beware of Silver

Demand for silver has outpaced demand for gold for months now. Gold hits a new record almost daily, but it is being surpassed by silver as buyers flock to the haven of precious metals in a climate of global economic volatility and uncertainty.

The price of silver is up about 38.8 per cent since the beginning of the year, compared with a rise of only 4.4 per cent for gold, according to a recent report by Brockhouse Cooper strategist Pierre Lapointe and economist Alex Bellefleur.

The ratio of silver to gold - a measure showing the relative strength of the two metals against each other - has risen to the 2.9-per-cent range, well above the historical average.



The price of silver has been testing highs not seen since the 1980s. Among the reasons for its spectacular rise are speculative buying and tight supply, fuelled (as with gold) by investor worries over U.S. inflation, sovereign debt issues in Europe and geopolitical instability in the Middle East and North Africa.

But it's interesting to note that silver production has actually been expanding quite a bit since the mid-1990s, while gold extraction has not, the authors say.

They believe the recent silver rally is not backed by the fundamentals, namely that the gap in mine production between silver and gold should have favoured bullion over silver and that silver prices are headed back down to below $30 (U.S.) an ounce.

Chart 2: GDP and ManufacturingManufacturing Gathers Steam

Canada's manufacturing sector is humming. Since mid-2009, it has been recovering steadily from the doldrums of late 2008, boosted by a rebound in vehicle assemblies and parts and also helped by a run-up in global commodity prices, according to Ryan Brecht of Action Economics.

January's GDP report indicated that factory sector output soared 2.8 per cent, after a 0.8-per-cent rise in December, says Mr. Brecht.

The growth in factory output is explained in large part by the pick-up in U.S. manufacturing activity, which bottomed out in January, 2009, and then expanded through much of 2010, he says in a recent report. U.S. firms import a variety of parts from Canada for final assembly south of the border.



Given its heavy reliance on exports, manufacturing is one area over which the Bank of Canada has limited influence, Mr. Brecht says.

"While the BoC's stimulative monetary and fiscal policies have clearly played a key role in the still-evolving manufacturing recovery story, continued improvement depends upon the success of fiscal and monetary policy abroad, notably in the U.S.," he says.

"A sizable portion of Canada's economy is on the periphery of domestic monetary and fiscal policy influence."

Chart 3: Changes in Occupation U.S. Skills Gap Widens

Middle-skilled, middle-paid jobs have been disappearing from the U.S. labour market on an unprecedented scale.

There has been a sharp polarization of skills over the past 10 years, as demand at one end rises for highly educated, skilled employees while there is strong growth at the other end for less skilled, less educated workers, says a TD Economics report by Beata Caranci and Chris Jones.

Middle-skilled jobs are vulnerable because they can be outsourced to low-wage locations or be automated. But while low-quality jobs such as those in the service sector continue to grow, the pace of growth is faster for high-skilled jobs, say the authors.



In 2009, 20 per cent of American workers were in low-skilled jobs, a 2 percentage point increase from 1999. Nearly one-third of the work force was employed in high-skilled occupations, up 4 percentage points over 1999.

"Rather than lamenting the decline of middle-skilled job opportunities, states should continue to encourage the formation of high-skilled clusters by fostering talent and innovation within their own borders," the authors say.

"Although a number of states in the South have a lopsided, low-skilled, polarized job market, there is clear evidence that progress is being made to move up the skills distribution curve."