Recent Gains Lower Gold/Silver Ratio

March 6, 2010 – The recent rally has seen increases for both gold and silver prices, with gold rising $16.50 per ounce or 1.5 percent since February 26th and silver gaining 86 cents or 5.2 percent during the same time. The relationship between the two prices is called the gold/silver ratio and it is used by analysts to speculate on the potential moves by each metal.

The gold/silver ratio is calculated by dividing the price of gold by the price of silver to get a ratio. The typical range is between 16 and 70, with higher numbers favoring silver price increases and lower numbers favoring gold. Before the current rally started, the ratio stood at over 71, suggesting that silver was undervalued and positioned for a stronger climb than gold. On February 26th, this number had already dropped to 67.78. As of yesterday’s close, the gold/silver ratio stood at 65.36.

The Relative Strength Index for gold is at 60.47 and silver’s RSI is at 54.60; numbers higher than 40 suggest that both are oversold and likely to rise in price. With gold likely to increase in price, the gold/silver ratio suggests that silver will increase even more dramatically; a condition that has occurred in the past week as seen by silver’s 5.2 percent increase to gold’s 1.5 percent climb.

Ruff Time founder Howard Ruff says this about gold and silver, “Ignoring gold or silver will cost you a fortune in missed opportunities. In the worst case, gold is headed towards at least $2,500 an ounce, and silver is headed for at least $100.” As their values increase, the gold/silver ratio suggests those prices are possible. 

Shannon King

Senior Staff Writer –

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