Is my Target of $300 for Silver Too Conservative?
The price ratio of gold versus silver has been dropping in the last couple of years in favor of the white precious metal. At the moment, the gold/silver ratio is trading below the ”crucial” bandwidth of 40-to-50, currently hovering around 32x… [which] marks the beginning of a new phase in the bull cycle. The gold/silver ratio could finally be on its way to our target of 16x, the historical bottom in the last century. [Let me explain why I think that may well be the case.] Words: 580
So says Nico Pantelis (www.goldmoney.com) in an article* which Lorimer Wilson, editor of www.munKNEE.com, has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. (Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.) Pantelis goes on to say:
Recent Gold: Silver Ratio
Although the drop seems overdone, and the ratio set for an upward recoil, the technical damage caused by breaking through the 40 level has been done. Taking into account my long-term price target for gold of $5,000 per ounce [see here for a complete list of the 86 analysts with a similar point of view], we should see a substantial upward acceleration in the silver price in the coming months and years… [which] will bring us silver prices of over $300 per ounce… [which] could turn out to be too conservative.
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Historical Gold:Silver Ratio
The latest research from Deutsche Bank shows that the gold/silver ratio averaged around 12x (hovering between 10x & 15x) in the Middle Ages. Furthermore, Newton fixed the gold/silver ratio to 15.5x from 1700 till 1873… [For a more extensive analysis of what the historical gold:silver ratio could mean for the future price of silver go here.]
The real price difference between both metals should be dependent on available quantities in the Earth’s crust and that’s where things start to get tricky. Scientists and geologists have varied conclusions, with some citing silver deposits over 20 times physical gold reserves, while others claim they are as low as 7x. I think the lower end of these assumptions may be more useful as far as future silver prices are concerned, since silver is processed and consumed at a rapid pace — mainly due to the emerging market giants China and India — while gold is being hoarded at the same speed.
If we take all the possible gold/silver ratio’s from the past, combined with the assumptions of the physical metals probably available on our planet today, then we could see the gold/silver ratio drop to 10x in the current bull cycle. This brings us to a silver price – still taking my target price for gold into consideration – of up to $500 per ounce and more. I won’t go there (for now), but it makes my current target of $300 silver look less exaggerated, doesn’t it?
Stick to your guns, we still have a long way to go!
- The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
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