Friday, October 24, 2008

What Happens if Silver and Gold Price Ratio Returns to Historic Pattern?

It's an understatement to say gold and silver have been struggling lately, as the two metals continue to plunge, along with the worldwide economies.

What is fascinating about silver in particular, is the current ratio that is completely out of sync with its historic levels with gold.

The historical average ratio between the prices of gold and silver has been silver holding close to a 1/20 price of gold. At this time it is sitting at only a 1/75th price in relationship to gold's price.

What silver investors need to ask themselves is what happens if the price ratio between silver and gold reverts back to historic norms.

We can be sure some of that will come from the continual fall of the price of gold, but I don't think we can assume that in and of itself will bring back the ratio. I think we'll start to see the rise of silver prices again, and when that happens, there will be an abundance of opportunities to play the metal.

Once the forced liguidation of commodities unwinds itself, it's at that time we should look seriously at a surge in silver prices, which should drive up the prices of good silver mining companies ... and others as well.

The bottom line is we need to keep a close eye on the ratio of prices between silver and gold. They are far too out of sync at this time to remain there. When it changes, we need a plan in place to swoop in and profit from it.

2 comments:

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