With the trilateral commission on wealth distribution working to “pick the pockets” of the people and confiscate wealth on a new level, many investors are trying to figure out whether they should buy gold or silver to protect themselves.  Although both metals have performed fairly well, gold has done better, posting average double digit gains every year for the past 8 years.  Silver’s performance however, was somewhat hampered in the crash of 2008.  As gold posted the year with positive gains, silver closed the year down about 38%.  The current historical gold to silver ratio is out of balance, with potential for a move back towards the historical standards.

Today’s gold to silver ratio is around 72.  That is, it currently takes about 72 ounces of silver to buy 1 ounce of gold. 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.     


 
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.  
 

Chart provided by Gold Eagle.com

Another major event that could cause an explosion in silver is the possibility of short covering.  Several major financial institutions are believed to have short positions that make up a large percentage of the world’s silver market. If these banks are ever forced into a situation where they are required to cover their positions, we could see silver rise sharply.

INVESTMENT DEMAND:

Investment demand for silver is surging.  With more collapsing banks and bailouts, a greater percentage of the public is realizing that their currency may soon be worth less.  Many small investors cannot afford gold and may buy silver instead.  CPM group, a research firm expects silver bullion demand to set a new record in 2009.  
 

If you are interested in receiving information about investing in gold and silver, feel free to email jared.irish@archerfinancials.com or call 312-324-0272.

Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The views and opinions expressed in this letter are those of the author and do not reflect the views of ADM Investor Services, Inc. or its staff.  The information provided is designed to assist in your analysis and evaluation of the futures and options markets.  However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright © ADM Investor Services, Inc.