Silver is frequently one of the most favored precious metals investors invest in, but silver is only presently trading slightly below the $19.50 per ounce level at the end of 2013. Unlike gold, the price of silver is highly volatile because it is not as liquid as gold, and because of the fluctuation of the demand between store of value and industrial uses.
But what seems to be a price fiasco can actually be an awesome buying advantage. Silver, specifically, silver coins are great hedge investments. Buying silver bullion or coins as part of an investment mix, an investor can survive any economic or financial crash. Silver continues to be cheap, and the market is extremely small and unobtrusive.
The price of silver vs. the price of gold
The price of silver frequently takes off after the price of gold, but there are times when the ratio varies widely. As far back as in Roman times, the ratio of the price of gold to silver was set at 12:1. In the US the ratio was fixed by law at 15:1 in 1792, while in France a law was enacted to fix the ratio at 15.5:1. These were times when the prices of gold and silver were fixed by governments. However, in the 20th century the average ratio in the price of gold to silver was 47:1, ranging from a high of 100:1 to a low of 16:1 or 17:1. The current ratio of the price of gold to silver is 65:1.( $1,260.80/$19.19)
Many experts in the gold/silver community believe that the price ratio between gold and silver should revert to the historical ratio close to 16:1. If this happens, at today’s price of $1,260.80 per ounce silver would have to be around $78.81. The arguments supporting said belief are:
- There are studies that showed that silver is 19 times more plentiful than gold
- There are also studies that showed that silver in the ground is approximated at 9 ounces to 1 ounce of gold
- Investment grade silver is more precious than gold
- Silver has more industrial uses than gold
- Big players in the silver futures or silver paper contracts have been manipulating the market for the longest time, and this has kept the prices artificially low in a practice called naked shorting.
What’s the prognosis?
All the above are indications that buying silver now should be very advantageous assuming that the ratio will revert to its historical level. Citibank predicted that the price of gold will hit $3,500 in the next years to come. Their theory is that the price of gold will be boosted by the continuing laxity in the monetary policies of Japan, the US and the Eurozone and these countries’ piling debts plus the strong demand for both silver and gold from China and other Asian countries. Given this environment a return to the historical ratio of 16:1 will mean a price of gold at $3,500 means silver could rise to $220.
This phenomenon could bring a dramatic change to the silver market, and silver investors will benefit tremendously.