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Silver price rising three-times as fast as gold

By: Peter Cooper

-- Posted 21 April, 2011 | | Discuss This Article - Comments:

Over the past three days the price of silver has jumped from $42 to $46 an ounce, while gold has moved up from $1,480 to $1,507 at the time of writing. That is approximately a six per cent gain for silver and two per cent for gold.

The silver price is therefore rising at three times the speed of the gold price. Gold and silver bugs know this relationship well.

Gold-to-silver ratio

The ratio of gold-to-silver closes up as precious metals become more popular. When this website’s editor published a book on ‘The Road to $5,000 Gold’ (click here) a year ago, the ratio was around 80 ounces of silver to buy one ounce of gold.

Today that same ratio is down to 33. In that timeframe gold has jumped from $1,000 an ounce to over $1,500, or roughly 50 per cent. Silver is up from $17 an ounce to $46, or 270 per cent.

It is a very significant difference, and this ratio can fall still further. The centuries’ old ratio of gold-to-silver is 12-16 depending on which authority you consult, so there is the potential for silver to deliver three times more gain in value than gold if we go back to this past ratio.

The law of mean reversion suggests that is very likely, particularly if the upward momentum of precious metals continues.

In the last edition of the ArabianMoney newsletter (click here) we heard from Swiss investment manager Rolf Nef who advised selling your home and buying silver back in 2007 precisely because of this upside potential and the negative outlook for real estate.

$320 silver?

However, the profit to be gained in transferring wealth into silver still looks outstanding. ArabianMoney has a forecast for $5,000 gold and $320 silver within the next few years (click here).

This is most likely the investment opportunity of a generation and yet silver is still barely mentioned in the financial press. Gold gets the headlines, and the silver price always looks a bit of a poor relation compared to its flashy cousin.

But make no mistake silver is the place for the patient, value investor in this commodities boom. Nothing goes up in a straight line forever, and that is where patience is always a virtue in investment. But if you just stick in the best performing asset class for a period then you are not going to go far wrong.

-- Posted 21 April, 2011 | | Discuss This Article - Comments:

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