The gold and silver ratio topped out at nearly 80 late last year. Since then it has been on a steady decline, holding between 70 and 80.  Today’s gold to silver ratio is around 65.  That is, it currently takes about 65 ounces of silver to buy 1 ounce of gold.  It has recently broken the support level at around 68 and will likely continue moving towards the 50 level and possibly lower in the coming months.  For hundreds of years this ratio remained relatively steady at around 15.  This makes sense from a geological perspective in that the frequency of occurrence of silver in the earth’s crust happens to be about 15 times that of gold. Over the past 100 years however, we have seen violent swings in the gold to silver ratio.  Investors may want to consider holding

 
Chart Provided By:  Gold Eagle

There are a number of reasons why this ratio is out of line with its historical standards. Drastic changes to the financial system have taken place, especially since the formation of the Federal Reserve in 1913.  Governments have debased the currency several times only to move to a system that we have today; a system backed by nothing but debt.  The current system has evolved into something that allows for manipulative practices on the part of the government and the government banks. These manipulative practices go hand in hand with market turmoil such as seen in the Great Depression, inflationary 70’s, and the current depression. The ratio will most likely move back towards its historical average in the coming months as we move out of the current depression into an inflationary depression.  
 

Chart provided by Bestwaytoinvest.com

There are several factors brewing in this market which may cause the silver to outperform gold. These include the supply deficit, investment demand and the potential for a forced short covering. The world has been consuming more silver than it has been producing for more than a decade.  The excess demand has been met through scrap supply, which is currently dwindling. 


Silver for Profit

The Fed’s actions to bail out the credit crisis will only delay the problem sending us further into the inflationary cycle.  The silver market is rather small in comparison to the gold market, and precious metals are only a fraction of the size of traditional asset markets.  We are in a supply crunch as investment demand and new industrial uses increase. While both gold and silver will perform well, silver is expected to yield higher returns. 

If you are interested establishing positions and the gold and silver markets, please feel free to call me if you would like to discuss opportunities. You can reach me at 312-479-2077 or email me at jared.irish@archerfinancials.com .


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