If Gold Poised for Take-Off Then Silver Should Do Even Better Better

The current gold: silver ratio of 63:1 suggests there could be some good catch up for silver ahead

Author: Lawrence Williams

LONDON -

(MineWeb)Investors are beginning to move back into silver as there is a perception that the metal's more volatile price patterns will lead to better returns if gold also continues to improve.

If last week's surge in the gold price indicates that momentum is truly building to push the yellow metal into testing its December high point (in dollar terms) of $1226 an ounce, then an investment in silver looks a pretty good gamble.

Silver prices move pretty well in line with gold, but there tends to be much more volatility on both the downside and the upside, so if gold is in an upwards trend, as many observers think, then a parallel rise in the silver price could be much greater in percentage terms. Gold is currently only around 2% off its high, while silver is some 7.5% off its 2008 peak, suggesting that a run up in precious metals prices in general would likely see silver dominate in its rate of increase - and this could benefit silver holders even more should some of the other gold forecasts - say of $1500 by the year-end - be achieved.

Consider also the gold silver ratio. At the current price levels for each the ratio is around 63:1. Historically this price ratio has mostly been between 45 and 50 in recent years, again suggesting there could be a good catch up from silver ahead. Even at the current gold price level a ratio of 50:1 would put silver at over $23 an ounce which would represent a very sharp percentage increase from current values - although this is not a change which would likely happen quickly.

Silver also has a strong industrial element in its consumption pattern - much more so than gold - so the state of the global economy, and the apparent lack of growth outside Asia, has partly held it back. In particular its growing usage as a biocide in wound treatment, water purification, general hospital usage etc. could eventually replace declining photographic usage as a key element in silver demand - and is far less subject to recycling than the latter.

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