The majority of analysts are now of the opinion that gold will reach a parabolic peak price somewhere in excess of $5,000 per troy ounce in the next few years. Given the fact that the historical movement of silver is 90 – 95% correlated with that of gold suggests that a much higher price for silver can also be anticipated. Couple that with the fact that silver is currently greatly undervalued relative to its average long-term historical relationship with gold and silver could escalate dramatically in price over the next few years. How much? This article takes a look at historical gold:silver ratios and what attaining certain relationships would mean for the price of silver should specific price levels for gold be realized. Words: 1411
So says Lorimer Wilson, Editor of www.FinancialArticleSummariesToday.com and www.munKNEE.com, (It’s all about Money!), in an article outlining the historical price correlation between gold and silver and what it means for the future price of silver as the gold bull runs it course. Please note that this complete paragraph, and a link back to the original article*, must be included in any article posting or re-posting to avoid copyright infringement.
History Suggests Gold Could Go to $5,530.79 – $6,812.57 per ozt.
Gold went up 24% in 2009 and 30% in 2010 but that pales in comparison with what gold did back in 1979/80 when gold rose 289.3% (from Jan. 1, 1979 to its peak on Jan. 21, 1980 – and 128% higher in a late-1979 parabolic blow-off of just under 11 weeks)!
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A 289.3% increase in the price of gold from the December 31st, 2010 closing price of $1420.70 per ozt. (for an article detailing how a troy ounce differs from a regular ounce measurement read this (1) article) would put gold at $5,530.79 per ozt. – and a 289.3% increase from the mid-August, 2011 price of approximately $1,750 per ozt. would equate to a future price of $6,812.57 per ozt.! (More on what that might mean for the future price of silver is analyzed below.) That being the case what appear on the surface to be rather outlandish projections of what the bull market in gold will top out at don’t seem quite so far-fetched. (Go here (2) for a complete list of the economists, academics, market analysts and financial commentators who maintain that gold will go parabolic to $2,500 -$20,000 per ozt. in the near future.)
History Suggests Silver Could Go to $256.74 – $325.42 per ozt.
Silver increased 49% in 2009, and 83% in 2010 which were significant price appreciations but they too pale in comparison to what transpired back in 1979/80 when silver increased by 732.5% in just over one year. Such a percentage increase from the Dec.31, 2010 price of $30.84 per ozt. would represent a future parabolic peak price of $256.74 per ozt. – and from the mid- August, 2011 price of approx. $40 per ozt. would equate to a price of $325.42 per ozt.! (For what that might mean for the future price of gold see the analysis below.) Frankly, such prices seem impossible in practical terms but that is what the numbers tell us.
How both gold and silver perform, in and of themselves, does not tell the complete picture by a long shot, however. More important is the price relationship – the correlation – of one to the other over time, the gold:silver ratio, and the move from 78: 1 at the end of 2008 to 65:1 at the end of 2009 to 45:1 at the end of 2010 and to 44:1 in mid-August, 2011 attests to the fact that silver is on the move towards the average long-term historical relationship with gold of 16:1.
Let’s look at the gold:silver ratio from several different perspectives:
- In the last 25 years (since 1985) the mean gold:silver ratio has been 45.7:1 and is currently approx. 44:1
- During the build-up to the parabolic blow-off in 1979/80 the ratio dropped from 38:1 in January 1979 to 13.99:1 at the parabolic peak for both metals in January, 1980.
- Were the % increases in gold and silver during the 1970s parabolic phase (289.3% and 732.5% respectively) applied to the 2010 year-end prices of gold and silver ( $1,420.70 per ozt. and $30.84 per ozt. respectively) the resultant prices for gold and silver of $5,530.79 per ozt. and $256.74 per ozt. respectively would equate to a 21.5:1 silver to gold ratio.
- Were the same % increases applied to the mid-July 2011 closing prices of gold and silver of approx. $1,600 per ozt. and $40 per ozt. respectively, the resultant prices for gold and silver of $6,812.57 per ozt. and $325.42 per ozt. respectively would equate to a 20.9:1 silver to gold.
Let’s now look at the various price levels for gold and the various gold:silver ratios mentioned above one by one and see what conclusions we can draw.
First let’s use the current ball-park price of approximately$1,750 for gold and apply the various gold:silver ratios mentioned above in approximate terms and see what they do for the potential % increase in, and price of, silver.
Gold @ $1,750 using the year-end 45:1 gold:silver ratio puts silver at $38.89
Gold @ $1,750 using the above mentioned 21.5:1 gold:silver ratio puts silver at $81.40
Gold @ $1,750 using the above 13.99:1 gold:silver ratio puts silver at $125.09
Now let’s apply the projected potential parabolic peaks of $3,000, $5,000, $10,000 and $15,000 to the various gold:silver ratios and see what they suggest is the parabolic top for silver.
Silver’s Price Range With Gold At $3,000
a) Gold @ $3,000 using the gold:silver ratio of 45:1 puts silver at $66.67
b) Gold @ $3,000 using the gold:silver ratio of 22:1 puts silver at $136.36
c) Gold @ $3,000 using the gold:silver ratio of 14:1 puts silver at $ 214.29
The above analyses bears closer scrutiny. In paragraph five it was noted that “back in 1979/80…silver increased by 732.5% in just over one year. Such a percentage increase from the Dec.31, 2010 price of $30.84 per ozt. would represent a future parabolic peak price of $256.74 per ozt..” That price is only slightly higher than the $214.29 per ozt. that would result from a 14:1 gold:silver ratio with gold at $3,000 per ozt.
Furthermore, as can be seen below, the $227.27 that would result from a lesser 22:1 gold:silver ratio with gold at $5,000 per ozt., and the $212.77 that would result with gold at $10,000 per ozt., strongly suggest that a future price for silver at over $200 is well within the realm of possibility.
Silver’s Price Range With Gold at $5,000
a) Gold @ $5,000 using the gold:silver ratio of 45.1 puts silver at $111.11
b) Gold @ $5,000 using the gold:silver ratio of 22:1 puts silver at $227.27
c) Gold @ $5,000 using the gold:silver ratio of 14:1 puts silver at $357.14
Silver’s Price Range With Gold at $10,000
a) Gold @ $10,000 using the gold:silver ratio of 45:1 puts silver at $222.22
b) Gold @ $10,000 using the gold:silver ratio of 22:1 puts silver at $454.55
c) Gold @ $10,000 using the gold:silver ratio of 14:1 puts silver at $714.29
Silver’s Price Range With Gold at $15,000
a) Gold @ $15,000 using the gold:silver ratio of 45:1 puts silver at $333.33
b) Gold @ $15,000 using the gold:silver ratio of 22:1 puts silver at $681.82
c) Gold @ $15,000 using the gold:silver ratio of 14:1 puts silver at $1,071.43
It would appear that, any way we look at it, physical silver is currently undervalued compared to gold bullion and is in position to generate substantially greater returns than investing in gold bullion.
Gold:Silver Ratio Conclusion
History will look back at the artificially high gold:silver ratio of the past century as an anomaly caused by the world being deceived into believing that fiat currencies are real money, when in fact they are all an illusion. This fiat currency experiment will end badly in a currency crisis and when that happens, as it surely will, gold will go parabolic and silver along with it – but even more so – as the gold:silver ratio adjusts itself to more historical correlations.
The wealthiest people in the future will be those who put 10% to 15%  (or perhaps more – much more!) of their portfolio dollars into physical silver today and are smart enough to research and pick the best silver mining/royalty stocks and warrants (see articles here  and here ) to leverage/maximize their returns.
Indeed, while gold’s meteoric rise still has room to run, silver’s run is only getting started. Certainly, if the historical gold:silver ratios are any indication, it appears evident that now is the time to buy all things silver.
Titles and Links to Articles Referenced Above:
- What’s the Difference Between 1 Gold Carat, 1 Diamond Carat and 1 Troy Ounce? http://www.munknee.com/2011/03/whats-the-difference-between-1-gold-karat-1-diamond-carat-and-1-troy-ounce/
- Update: These 90 Analysts Believe Gold Will Go To $5,000 ozt. – or More http://www.munknee.com/2011/06/update-these-90-analysts-believe-gold-will-go-to-5000ozt-or-more/
- How Much Gold Should You have in Your Portfolio http://www.munknee.com/2010/09/how-much-gold-bullion-should-you-have-in-your-portfolio/
- The “Secret” World of Gold and Silver Company Warrants http://www.munknee.com/2011/05/the-secret-world-of-gold-silver-company-warrants/
- Buying Gold & Silver Company Warrants is Easy & Profitable – Here’s How (and Why!) http://www.munknee.com/2011/06/buying-gold-silver-company-warrants-is-easy-profitable-%e2%80%93-here%e2%80%99s-how-and-why/
- 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.
- Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.