WHAT OTHERS ARE THINKING
World Of Wallstreet blog has an interesting analysis of the gold/silver ratio: "I conclude that we need to be careful of significant, medium-long-term gold and silver price weakness following the conclusion of the current GSR dive and be ready to either duck out of gold and silver for a period of time (e.g. months) or grit our teeth and hold on tight thru some significant price weakness." That conclusion is based on comparing the current rapid reduction in the gold/silver ratio from 68 to 46 (a reduction means silver outperforms gold) to similar reductions in 2006 and 2004. In both previous situations, after the gold/silver ratio bottomed, both gold and silver prices declined and “it took many months for Gold and Silver to recover their recent highs.” However, the assumption in this analysis is that the “natural” gold/silver ratio is the mid sixties, ignoring the possibility that there is a structural change in the market with silver becoming relatively more rare compared to gold (it is more of an industrial metal than gold, without large central bank stockpiles). Either way the reduction in the gold/silver ratio has been very dramatic and does warrant some caution by investors.
Bron Suchecki
The Perth Mint Blog
