April
For a long time now I have studied the relationship between gold and silver. Price ratio between gold and silver have been dropping in recent years for the white precious metal. Currently, the ratio of gold/silver trading below the “critical” bandwidth of 40-50, currently hovering around 38 x.
Although the downturn seems overdone, and the fact that for an upward recoil, has technical damage caused by breaking through the level 40. We are thus in new areas as far as the relationship between the gold/silver price and silver price direction. Since we are in a secular bull market for commodities, in General, and precious metals, specifically this breakthrough marks the beginning of a new phase of the bull cycle. Gold/silver ratio was finally on its way to our goal of 16 x, historical bottom in the last century.
In view of my long-term price target of $ 500 per ounce gold, should we see a significant upward acceleration in the silver price in the coming months and years. By the way, is my Gold target at $ 5,000, back in 2005, when gold traded around $/ounce. I have not changed our target … but as the global crisis developed further, and Bernanke and co. which keep on QE ‘ ing, perhaps I should review my model.
But it is to think of another time. For now, stick to my $ 5,000-dollar-gold target. This will bring us silver prices above 300 dollars per ounce. From current levels do I still a tenfold increase in silver!
When I talked about these types of target prices for silver, six years ago when the metal is still trading below 10 dollars per ounce, believed people me a cowboy. Nowadays, things look more realistic, but investors still does not appear to contemplate a three-digit silver price. Well, I got news for you: my target $ 300 Silver could prove to be too conservative.
The latest research from Deutsche Bank shows that gold/silver ratio on average about 12 x (hovers between 10 x and 15 x) in the middle ages. In addition, solid gold/silver ratio Newton to 15,5 x from 1700 to 1873. More research on my part led to ancient Greece, where the existing gold and silver mines ranged between 10 x and 13,5 x.
Actual price difference between the two metals should be dependent on available quantities in the Earth’s crust. And that is where things gets tricky. Scientists and geologists have varied conclusions, with some citing the silver deposits of more than 20 times the physical gold reserves, while others claim they are as low as 7 x. I believe that the lower end of these assumptions may be more useful as regards the future silver prices arebecause silver is processed and consumed at a fast pace – mainly in the emerging market giants China and India – while gold is to be saved in the same speed.
If we take all sorts of gold/silver relationship from the past, combined with the assumptions in the physical metals are likely to be available on our planet today, then we could see gold/silver ratio drop to 10 x in the current bull cycle. This brings us to a silver price – still considering my target price for gold – up to $ 500 per ounce, and more.
I will not go there (right now), but it makes my current target $ 300 Silver looks less exaggerated, not zero-day stick to your guns, we still have a long way to go!
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