The Gold Silver Ratio

4 February 2010 – For many investors, buying and selling decisions are made on the basis of fundamentals or technical trading. The concept is that precious metals and other commodities trade in cycles, or that quantitative results can be determined through mathematical formulas. The Gold Silver Ratio is one of these formulas that interpret the price of both metals against the movement of the other.

Many investors are aware that gold and silver often trade within a reasonable ratio to each other, generally ranging from 15:1 to 70:1. Based on today’s prices, gold is at $1,064.20 and silver is priced at $15.26. This ratio is extremely close to the top end of the range at 69.7:1 and is more than four times higher than its historical low. While gold prices have risen quickly, the ratio doesn’t necessarily suggest that gold is inflated, rather that silver may well be undervalued.

Gold has performed well recently, and much of gold’s growth has been due to the same factors that drove its’ success historically. If gold is not overpriced and isn’t a bubble asset, the ratio would suggest that silver is underpriced and in prime position for a big rally.

Gold, silver and platinum have been hedges against inflation, so for institutional investors, they are interchangeable. What is not interchangeable, however, is the profit potential.

Since the Gold Silver Ratio is so tilted in gold’s direction, silver continues to display strong potential as an anti-inflationary investment. Silver is more affordable than gold and platinum, and it maintains the same positive fundamentals of the other investment-grade precious metals. Investors who are seeking new investment opportunities should consider adding silver bullion to their portfolio and watching for it to rally if the dollar’s fall continues. 

Shannon King

Senior Staff Writer –

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