Close X Cookies are necessary for the proper functioning of 24hGold.com. By continuing your navigation on our website, you are accepting the use of cookies.
To learn more about cookies ...
EnglishFrench
Gold & Silver Prices in
In the same category

Watch the Gold / Silver Ratio

IMG Auteur
Published : February 14th, 2011
633 words - Reading time : 1 - 2 minutes
( 4 votes, 4.5/5 ) , 1 commentary
Print article
  Article Comments Comment this article Rating All Articles  
0
Send
1
comment
Our Newsletter...

 

 

 

 

– In precious metal bull markets, silver outperforms.  Its price climbs at a faster rate than gold’s price.  The reverse happens in bear markets.  Silver’s price drops at a faster rate than gold’s price.  The following chart of the gold/silver ratio illustrates this phenomenon.





At the peak of the last precious metal bull market in January 1980, it took 17.4 ounces of silver to buy one ounce of gold.  Thereafter, the ratio turned and started climbing higher.  By February 1991, 101.8 ounces of silver were needed to exchange for one ounce of gold.  Silver was trading at only $3.50 per ounce, down 93% from its previous bull market peak. 


Silver back then was “dirt cheap”, but it would not get any cheaper.  Silver turned the corner as value oriented buyers recognized a bargain.  Since then the price of silver has been generally rising, and has been doing so faster than the spectacular rise in the price of gold.  The result is a long-term downtrend in gold/silver ratio.  In other words, since 1991, silver has outperformed gold.


Last week, the ratio touched 45.0 and ended Friday at 45.3.  It was the lowest daily and weekly close for the ratio since February 1998, which is a significant date.  That is the month Warren Buffett announced that he had acquired 130 million ounces of silver.  His footprint is visible on the above chart. 


We know from his disclosures that he began buying silver around $4 in July 1997.  The ratio then was in the mid-70s.  But note what happened to the ratio as Buffett accumulated his hoard over the next several months, culminating with the announcement of his purchase.  The gold/silver ratio fell by nearly 50%, so that only 41.3 ounces of silver were needed to buy one ounce of gold.  Silver was clearly outperforming gold, just like it has been doing over the last several months – as shown in the above chart by the remarkable drop in the ratio.


The ratio has now reached an important point.  It is breaking through support, which is illustrated by the lower red line on the above chart. 


Several previous attempts to break through support have failed, with the result that for many years the ratio has continued marking time within a trading range bounded by the parallel red lines.  That trading range now looks mature and ‘ripe for picking’.


One never knows of course how the markets will unfold in the future.  But I expect that the ratio will finally break through support, which is an event that I have been looking and waiting for patiently over many years.


If I am right and the ratio knifes through the low 40s and below the Buffett point, there is no clear short-term target.  Given the momentum evident in the above chart and the bullish fundamental factors impacting silver at present – like its unprecedented backwardation – a drop to at least the low 30s seems highly likely, but I don’t rule out the possibility of the ratio falling even lower.


My long-term target for the ratio is 17.  It is approximately the average level at which the two precious metals were exchanged for hundreds of years prior to the arrival of fiat currencies in 1971.  It has been my view that a 17-to-1 ratio is attainable by 2013-2015, but given what seems to be shaping up, we probably won’t need to wait that long.


The unprecedented backwardation in silver has one clear signal.  The potential for a massive short squeeze is building.  If one occurs – as I believe is becoming increasingly likely – there is no telling how quickly a 17-to-1 ratio could be achieved.


 


James Turk


All data and quotes sourced from Reuters.

Published by the Free Gold Money Report. Copyright © 2010. All rights reserved. 

 

 


 


 



Companies Mentionned : Signal |
<< Previous article
Rate :Average :4.5 (4 votes)
>> Next article
James Turk is the founder of the Free Gold Money Report and of GoldMoney.com. He is also the co-author of The Coming Collapse of the Dollar (www.dollarcollapse.com).
WebsiteSubscribe to his services
Latest comment posted for this article
Great article. You're not wrong James. I am wondering though whether that means Silver will continue heading skywards in the short to mid term or whether Gold will be coming down in price or remaining stagnant? Read more
john10001 - 2/24/2011 at 9:43 PM GMT
Top articles
Latest Comments
The Way Out
31 MarGypsy1
James, you're wrong to think the people on earth couldn't THRIVE ~ live well, eat well, enjoy great lives, advance mankind ~ with the resources we ...
Time to Eliminate Pilots in Airc...
30 MarShadowdoo1
Hi Mish, Sorry pal, I would rather take the door off than give the controls to some moron on the ground. Especially with that nitwit in t...
Gold: April 2015 Update
30 Marovertheedge
"I have been invited to speak at the Mines & Money Mauritius Conference in June 2015 again. If you would like to join you can receive 25% off your ...
Greece Needs the Magic Formula t...
30 Marovertheedge
Wow dude. "Idiocracy" is obviously not just another dumb-ass movie. I admit that I should have recognized your devotion to Brawndo (it has ...
Signs that America Will Hit the ...
30 MarFalconflight
I'll tell you what signals a return of the Dark Ages....the growing, almost hysterical screed again in the West that those Jews are responsible for...
Misunderstanding "Peak Gold"; Go...
29 MarTed S.1
Hi Mish, You make a good point about the difference between commodities and gold. It's a great point of discussion to counter people who ar...
The Finanser Interviews Jon Matonis
29 Marovertheedge
"In late 2009, I got introduced to Bitcoin by a random email from Satoshi Nakamoto. I didn’t give it much thought at the time and then 3-4 months ...
Gold Effect on Mining & Shale Wa...
28 Marneville1
Thank you Jim Willie for your open and candid report on some of the most urgent matters agrevating this economically and war torn world thanks...
Most commented articlesFavoritesMore...
World PM Newsflow
ALL
GOLD
SILVER
PGM & DIAMONDS
OIL & GAS
OTHER METALS
Mining Company News
Fortune Minerals(Ag-Au-Co)FT.TO
Releases 2014 Annual Financial Results
CA$ 0.11+4.76%Trend Power :
Financials
IAMGOLD(Ag-Au-Cu)IMG.TO
Iamgold in talks to buy AngloGold's stakes in two Mali mines
CA$ 2.53+7.20%Trend Power :
Exploration and drilling
Caribou CopperCKR.V
Signs LOI to Acquire Northern Extension of Buckingham Graphite Project
CA$ 0.13+0.00%Trend Power :
Corporate news
HudBay(Cu-Le-Ni)HBM.TO
VMS Reports Update on Reserves and Resources at Reed Mine
CA$ 10.42+0.58%Trend Power :
Corporate news
VMS Ventures(Cu-Ni-Zn)VMS.V
VMS Reports Update on Reserves and Resources at Reed Mine
CA$ 0.25-1.96%Trend Power :
Corporate news
Alto Ventures(Gems-Pl-Ag)ATV.V
Recovers Kimberlite Indicator Minerals on the West Fisher Claims Northwest of the Pikoo Diamo
CA$ 0.06+9.09%Trend Power :
Corporate news
Timberline Res.(Cu-Le-Zn)TLR
Timberline Closes Transaction to Acquire Talapoosa Project Option and Files Technical Report
US$ 0.61-6.15%Trend Power :
Corporate news
Goldcorp(Cu-Le-Zn)G.TO
Éléonore Achieves Commercial Production, Effective April 1, 2015
CA$ 23.83+3.97%Trend Power :
Production
Terra XTXR.V
View PDF
CA$ 0.37-3.90%Trend Power :
Corporate news
Terra XTXR.V
TerraX drills 5.00 m @ 5.29 g/t Au, inclusive of 3.00 m @ 7.98 g/t Au at Yellowknife City Gold
CA$ 0.37-3.90%Trend Power :
Corporate news
Comments closed
  All Favorites Best Rated  
Great article. You're not wrong James. I am wondering though whether that means Silver will continue heading skywards in the short to mid term or whether Gold will be coming down in price or remaining stagnant?
Subscribe to 24hGold’s daily market briefing
  • Prices and data of precious metals in 119 currencies and world mining companies
  • Daily analysis of the economy, markets and more
  • Free, daily and indispensable
Stay informed, subscribe now !
* Your email will never be shared.