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Gold And Silver

February 12, 2010 – While most people are aware that the US dollar reacts differently to economic growth than precious metals, some people don’t realize that growth affects gold and silver in different ways as well. Because various forces work against each metal, the issues that drive gold do not always have the same impact on silver. As Brian Hunt, the Editor in Chief of DailyWealth simply states, “Economic growth doesn’t affect gold and silver prices in the same way.”

Even world events can have a different impact on gold and silver. For example, economic failure in China would be a world event, but Hunt theorizes that it would affect these two metals very differently. "I think gold will do better than silver under this scenario, because gold is viewed as a monetary commodity by all the major players, whereas silver is viewed as an industrial metal as well as a monetary one.” Hunt then continues, “In a contracting economy, silver may fall. That doesn’t mean I’m going to rush to sell my silver, it means that I am prepared to see silver fall."

Currencies are systematically being devalued; this will have the effect of raising prices on physical assets, but how those prices rise could vary. For this reason, the Gold / Silver Ratio compares the prices of both metals and evaluates their individual movements. The optimal range for this ratio is generally considered to be between 16:1 and 70:1, with the lower numbers indicating strength in silver and the higher numbers favoring gold.

Recently, the ratio has been at or above 70:1; as analysts look at the relative strength of gold, the feeling is that gold prices reflect proper fundamentals, meaning that gold is not overpriced and silver is likely underpriced. While trading on the same markets, gold has been more favorably influenced recently than silver, suggesting that silver may be in line for a strong rally.

Gold and silver are two commodities that react differently, but there are factors such as their ratio that point out possible clues for successful trading of both. Owning both of these metals allows investors to potentially capitalize on the uniqueness and individual movements in order to profit from each. 

Shannon King

Senior Staff Writer – GoldSilver.org

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