Silver vs Gold

I just read a great article singing the praises of investing in silver over gold. The article is written by Jeff Nielsen for "The Street" an online investors forum.

His major point is that the historic ratio of gold to silver value has been around 15:1 for thousands of years. This roughly reflects the ratio of those elements found in nature (17:1, silver being around 17 times more plentiful than gold).

Right now that ratio is around 42:1. An ounce of gold being 42 times more valuable than an ounce of silver. He goes on to argue that this ratio is the result of artificial market manipulations. "...extreme-and-absurd manipulation of the silver market through the criminal activities of the bullion-banks in futures markets -- and mostly from New York's Comex exchange. "

His thesis is that market forces will eventually correct this imbalance and that silver can and will continue to appreciate at a greater rate than gold until the gold to silver ratio is more in balance with what it should be.

His conclusion: "Given these parameters, it is obvious that all precious metals investors should favor silver over gold, as of this moment. The question is: how heavily should investors tilt their portfolios toward silver?"

I found it to be a great read. It certainly makes me think that I should continue adding to my silver holdings. Here's the link:

http://www.thestreet.com/story/10788867/1/gold-vs-silver-investing-for-novices.html

Assuming gold stays at or around $1400/oz, it makes $35 silver seem like a bargain.

I'd be interested to hear other cointalker's thoughts on this opinion. Thanks.

 

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From what I have posted as my view points on what will happen to Silver over the next few years, some folks may think I am crazy.
But one of the "many" factors for the ascent of Silver, is as you mention. I too read this.

My only addition to your post is for you to take physcial possesion of the metal and have a means to protect it via safe and arms.
The inflation will catch up and will no longer be able to be hidden from the general population as we are being hit with ever increasing prices on just about everything.

 

Maybe I'm wrong, but I don't think that ratio is being based on gold's inflated prices. I think the numbers will balance but at levels we saw in the early 90's, not at today's super-inflated numbers, which is why he mentions artificial market manipulation. Then we'd be seeing gold at around $450 and silver around $10. I think he's telling you buying now is a mistake.
Guy

 

Guy

Why in the World do you think Gold is so high?
It is because of a multitude of factors.

Gold itself is not inflated, it's because of all the other things that are wrong causing it's value to become real.
And if you ask me, it is still kind of cheap at this time. There are many predictions of escalation.

 

You think silver will drop to $10? I'm willing to take all your silver bullion off your hands for $20/oz...cuz that's the kind of guy I am.

 

I think Silver will continue to rise faster than gold but it may take a while to get the ratio down. I could see it getting down to maybe 25:1 once silver passes $50.

 

When I was buying Silver under $4.00 per ounce ..it was a bargain.....I'm buying at $32.00 an ounce and it's a bargain .

 

I read something similar to your article a while back and it is a big reason why I was able to retain my wealth. To me, this has already been proven to be credible, but we're just not all the way there yet. Silver is also a better semiconductor of electricity than gold, and thus has more application in electronics (plus cheaper). The only real benefit to gold that I can see (besides being slightly more malleable) is that if you are super rich you aren't going to be able to lug around thousands of oz of silver.

 

I'm not sure how I feel about the gold/silver ratio. The last time it was at 15:1 was about 1979 when silver experienced a super spike followed by a super crash; pretty dramatic chart. Having said that I do think there is something to thought that silver and gold = money and that market forces will recognize them in proportion to their representation in nature. In modern times fiat currencies have provided a reliable medium of exchange and has been the means by which the world conducts business. However, we have seen fiat's come under some stress and as people move from currency to money (silver and gold) and as this movement happens the price gets bid up. Based on what I have read, ready stockpiles of silver are very low and the chief advantage that silver has over gold is that silver is also a valuable industrial commodity. So silver has the potential of doing well in two very different scenario's 1) it shines because of its use as a store of wealth in a fading economy 2) it shines in a strong economy as it responds to industrial demand.

Regards,

Bluesboy65

 

There have been several articles out there recently about how silver is undervalued compaired to gold.
Gold has always been the PM of choice. Silver has always taken a back seat to gold. Which has led to it being undervalued. The problem that many people don't see. Is that gold (for the most part) is a recoverable metal. Silver is used much more for industrial purposes, and it can't be recovered. Top that off with shortages of silver for the foreseeable future cuz of production and growing world economies. You see that silver has a bright future indeed.
Buy, silver while you can. Because, it will be harder to obtain down the road.

 

a bright future. I get it

 

Howdy,

I've been a silver bug for years - since the last bull run in the late 70's. I've also been a very diligent follower of the gold/silver ratio. I've been buying silver for years and started in the $4-5 range (still remember a roll of ASEs from Paul Sims that cost me under $100 including s&h.

I agree with most everything said. If you're going to play, take possession of physical bullion - at least for your core stash. Whether the ratio ever gets back to 15 to 1 isn't as important as the fact that it's still dropping. It was at 80 to 1 a year or so back, now it's 42 to 1, tomorrow? I could easily see it drop to 20-25 to 1.

The pure way to play this ratio is to own both gold and silver bullion in the exact proportions as the ratio and rebalance as the ratio changes. This means that you would have had 80 ounces of silver for every one of gold. As the ratio has dropped you've been either selling silver and buying gold or just adding more gold. Now you'd be about 42 to 1.

The problem with this approach is book keeping for how do you convert all your holdings into like units. Instead what I've done is simply overweight silver relative to gold, in both my stash and my investments. Still am.

peace,

rono

 

http://goldinfo.net/silver600.html

Consider that for hundreds of years the gold/silver ratio was between 15:1 and 20:1. Andrew Jackson's headstone reads 'I killed the bank', because he drove the European central bankers out of the United States. He passed away in 1845, and within 20 years the ratio started spiking for the first time due to the civil war which some say was promoted by central bankers who profit from both sides of a war as well as, more of a motivating factor in this case, wanted a divided US which would be much easier to control. When that failed they began messing with markets in order to provide their solution of the Federal Reserve Act in 1913. From 1913 to 1934 it skyrocketed, leading up to and through the Great Depression which was largely due to stock market manipulation, and of course WWI. Things did gravitate back to the lower natural ratio when the gold price was fixed between 1934 and 1971. It should also be noted that 1979 is when we left the gold standard.

The point I am making is that what we consider to be the status quo is actually a rather short snapshot in a longstanding history of consistency. Should market manipulation continue until the cows come home, then metals may lose out (really anything is possible), however other historical references point to fiat money not winning the marathon which should allow market forces to reach equilibrium again including the gold/silver ratio.

'I have two great enemies, the Southern Army in front of me and the financial institutions in the rear. Of the two the one in my rear is my greatest foe' - Abraham Lincoln

 

I like silver a lot, but not because of the ratio. The 15:1 ratio is one of the most often repeated pieces of incorrect information. Internet authors keep repeating this without investigation to the point where many people believe it is a given. But if you do a little historical investigation, you will find that the ratio has been all over the place throughout history. The 15:1 is something invented by the Bank of England in the 18th century. The ratio is basically an accident depending on economic and cultural conditions. Gold and silver are not substitutes for each other in any major sense, so there is no cause and effect on price from their relative prices. The ratio could just as easily be 500:1 as 1:1.

 

Silver high in 2011 ... $50
Silver high in 2012 ... $75

 

All good points and I love the Lincoln quote. You stated it better than I but our relatively recent (since the 70's) comfort with fiat currency has relegated silver and gold as a store of wealth as an "antiquated" approach. Therefore there has been little investor demand during this period. The market will ultimately settle the ratio question.

Regards,

Bluesboy65

 

Interesting prediction. . But remember , along with market gains such as you predict , has it's consequences as well .

 

Indeed it will, but after reading the article, and watching gold run up by 300% plus in the last seven years or so, I can't help but think that silver is just starting its run.

 

Patrick Heller has an interesting article in Coin New Update. I don't know enough about the silver market to offer an opinion one way or the other. March is right around the corner...it'll be interesting to see what happens.

 

Hi yahpoo,

I live just outside of Lansing and have been dealing with Pat for years. He's very much a gold bug and writes often for Numismatic News.

Here's Liberty Coin's website. His commentaries are listed at the right. Also, his monthly newletter is always good for thought.

And while I like Pat and have a high respect for him, I don't always agree with everything he says.

http://www.libertycoinservice.com/


peace,

rono