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Silver to Soar as the Gold to Silver Ratio Stabilizes

4,500-year-old Ratio Shows Silver Will Catch Up to Gold

Written by Brian Hicks
Posted April 29, 2011

During precious metal bull markets, gold usually gets all the media attention. But as investors are quickly learning, the biggest gains go to silver.

Truth is, silver prices have consistently outperformed gold during bull markets — doubling, tripling, even quadrupling the price of the yellow metal.

In the past 12 months, for instance, the price of gold has increased 27%; silver has climbed 164% over the same time.

Yet despite the recent swell in prices, silver should continue increasing, doubling within the next few weeks and vaulting the price of the white metal over $100 an ounce.

Here's exactly how that's going to happen...

4,500-year-old Ratio Shows Silver Will Catch Up to Gold

For gold bugs and other hard-asset investors, the gold-to-silver price ratio is well known. But most investors are unfamiliar with this metric.

In short, the gold-to-silver ratio represents the number of silver ounces it takes to buy a single ounce of gold.

Since silver is approximately 16 times more abundant than gold on Earth, markets have set silver prices at 1/16th of the price of gold in the past. And that gives us the historic gold-to-silver ratio of 1:16.

To calculate the current gold-to-silver price ratio, simply divide the current price of gold by the current price of silver.

Markets have used this 1:16 ratio to price silver for over 4,500 years. But there are periods when the gold-to-silver ratio gets thrown out of whack and rises or falls to extreme levels.

For example, at the beginning of the current precious metal bull market, the gold-to-silver ratio was over 1:60.

But these periods of statistically extreme gold-to-silver ratio levels don't last. And sooner or later, the time-tested ratio returns to the historic 1:16 level.

Just last summer, the gold-to-silver ratio expanded to 1:66. Gold was over $1,200/oz; silver sat at $18/oz.

However, the gap between gold and silver prices has rapidly begun to close...

Silver to Soar as the Gold-to-Silver Ratio Stabilizes

By the beginning of the year, the gold-to-silver price ratio had narrowed to 1:48.

Today, the ratio sits at 1:32, with gold at $1,534/oz and silver trading at $48.25/oz. But the metric is rapidly approaching its historic 1:16 level.

If the price of silver would catch up to the historic gold-to-silver ratio today, the price of silver would be $95.87/oz. And as gold prices continue to rise, the price of silver would easily exceed $100/oz.

Before this secular bull market for precious metals is all said and done, I think the ratio will not only return to its historic 1:16 level; but it will actually move toward 1:10 or even 1:5.

That would push the price of silver toward $200 or $300 an ounce.

apr 2011 gold silver ratio chart

Think I am crazy?

That’s okay. I’ve gotten used to it over the years...

But I've also been proven right time and time again on most (not all) of my calls for precious metals prices, going back 12 years.

The hard truth is the world is about to face an unprecedented period in its history as it relates to fiat currencies.

There are oceans of fiat money across the planet that will suddenly be rendered worthless... As the fiat currency dominoes begin to fall, it is not difficult to imagine the pandemonium that will take place as investors attempt to flood into the only currency known to protect one’s savings at such a time: gold and silver.

Be Prepared

The amount of fiat money in existence is absolutely staggering. Yet the precious metals markets are tiny. There simply aren't enough of these metals for everyone.

A major upheaval is already underway. But it's about to get much, much worse.

It's going to be a difficult time for all of us. Those who are prepared will not suffer as much as those who are not. And I need to remind everyone not to listen to the constant media buzz that silver and gold are in a bubble.

They are not in a bubble.

This is just another attempt by the deceptive media, doing what they always do to keep you from what you should be doing — which, in this case, is buying gold and silver.

From what I have seen in the markets since the beginning of the year, it appears both gold and silver have been given a green light because the worldwide economic plight has suddenly accelerated.

The slight downside market action in precious metal prices is short and very brief, so I continue my mantra to buy on the dip days or dip mornings.

By afternoon in many cases, the metals are already in recovery mode as major physical buying comes into the market.

I expect we will be pushing for higher highs for all precious metals, with the occasional pullback for the balance of the year if the fiat currencies don’t implode in 2011...

When they do implode, it will be off to the races for gold and silver.

Good Investing,

Greg McCoach
Analyst, Wealth Daily
Investment Director, Mining Speculator and Insider Alert

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