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The Gold:Silver Price Ratio

Commodities / Gold and Silver 2011 Apr 08, 2011 - 04:23 AM GMT

By: Submissions

Commodities

Ian R. Campbell writes: An article this morning asks “Am I being too conservative with my silver price target?” - reading time 3 minutes.  In the article, the author states his current physical silver price target to be U.S.$300 per ounce, which he bases on his long-term physical gold price target of U.S.$5,000 per ounce, and what he (and many other authors) refer to as the historic gold/silver price ratio of 16 (divide 5,000 by 16, and you get 312.5).  As someone who owns some physical silver I certainly would like to simply sit back today and watch the first round of the Masters Golf Tournament, secure in the knowledge that based on this article my economic future and that of my family is secure.  That said, while I plan to watch snippets of the Masters today, I will be spending most of it in front of my computer.


My reasons:

  1. The author doesn’t say in his article how he has determined his long-term physical gold price target of U.S. $5,000, nor does he say what he means by long-term.  In any event I do not discount carefully considered and documented short-term (3 months to one year) gold price trends, let alone gold price targets beyond one year.  Accordingly, even if I knew how the author reached his long-term target price I wouldn’t place any weight on it.  Also, I have no idea how anyone can predict anything in this economic and world environment beyond, at best, the end of this calendar year.  Even then, I think any prediction for 2011 for the gold, or any other commodity, price needs to be qualified for ‘the effects of completely unexpected events’. For example, who would have thought even 90 days ago that Egypt would experience a major societal disruption;
  2. As noted above, lots of silver commentators talk about a gold/silver price ratio of 1:16 and place various degrees of reliance on that ratio as they formulate their views.  At least that is how I read a lot of what is said about the silver price.  If you look at a historic gold:silver price chart dating going back to 1975 you will see the gold:silver price ratio touched 1:16 only in 1980, was as high as 1:100 in 1991, was at about 1:38 in 1998, and since then until just recently when it returned to this 1:38 level has ranged from about 1:45 to 1:85.  Further, according to Wikipedia, the average gold:silver price ratio over the 100 year period ended 1999 was 1:47 – and that in 1792 and 1803 the U.S. and France respectively legislated that ratio at 1:15 and 1/15.5 respectively at a time silver wasn’t used industrially to anything like the extent it is today;
  3. Say what you will, from my perspective, the world is a very different place in very many ways from what it was even 15 years ago.

As a result of the foregoing, I give no weight to predictions based all or in part on what I see today as a meaningless 1:16 ratio.

About Ian R. Campbell
Ian R. Campbell, FCA, FCBV, is a recognized Canadian business valuation authority who shares his perspective about the economy, mining and the oil & gas industry on each trading day. Ian is also the founder of Stock Research Portal, which provides stock market data, analysis and research on over 1,600 Mining and Oil & Gas Companies listed on the Toronto and Venture Exchanges. Ian can be contacted at icampbell@srddi.com

© 2011 Copyright Ian R. Campbell - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

peter
10 Apr 11, 00:26
gold silver ratio

One of the reasons why the real gold/silver ratio is thought to be 1:16 is because silver is 16 times more abundant in the earths crust than gold. In effect it is the natural ratio. But where the ratio goes from here is anybodies guess. It may end up at 1:8 which is more in line with the amount of gold and silver than have been mined and exist above ground and perhaps with all the new industrial applications to silver the ratio could end up at 1:5. But certainly the ratio is converging with gold and will continue for many more months to come.


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