Given the fact that a) the historical movement of silver is 90 – 98% correlated with gold, b) silver is currently greatly undervalued relative to its average long-term historical relationship with gold and c) many analysts predict a parabolic rise in the price of gold over the next 5 years it is realistic to expect that silver will also escalate dramatically in price – but by how much? This article applies the historical silver to gold ratios to come up with a range of prices based on specific price levels for gold being reached.
The Silver:Gold Ratio
How both gold and silver perform, in and of themselves, does not tell the complete picture. More important is the price relationship – the correlation – of one to the other over time, the silver:gold ratio.
As mentioned in the introduction:
- the historical movement of silver is 90 – 98% correlated with gold,
- silver is currently greatly undervalued relative to its average long-term historical relationship with gold with a current silver:gold ratio of 74.7:1 and
- many analysts predict a parabolic rise in the price of gold over the next 5 years (here are 42 specific price forecasts for that period).
As such, it is realistic to expect that silver will also escalate dramatically in price (here are 14 specific price forecasts for that period) and most likely even more so than that of gold (see here and here for why that could well be the case).
Let’s look at the silver:gold ratio from several different perspectives:
- since 1985 the mean ratio has been 45.7:1
- during the build-up to the parabolic blow-off in 1979/80 the ratio dropped from 38:1 in January 1979 to 14:1 at the parabolic peak for both metals in January, 1980.
First let’s use the price of $1,200 for gold and apply the silver:gold ratios mentioned above in approximate terms and see what they do for the potential % increase in, and price of, silver.
- Gold @ $1,200 using the 45:1 ratio puts silver at $26.67
- Gold @ $1,200 using the 14:1 ratio puts silver at $85.71
Now let’s apply the projected potential parabolic peaks of $2,000, $3,000, $5,000 and $10,000 to the various silver:gold ratios and see what they suggest is the parabolic top for silver.
Silver’s Potential Price Range With Gold At $2,000
- Gold @ $2,000 using the ratio of 45:1 puts silver at $44.44
- Gold @ $2,000 using the ratio of 14:1 puts silver at $142.85
Silver’s Potential Price Range With Gold At $3,000
- Gold @ $3,000 using the ratio of 45:1 puts silver at $66.67
- Gold @ $3,000 using the ratio of 14:1 puts silver at $ 214.29
Silver’s Potential Price Range With Gold at $5,000
- Gold @ $5,000 using the gold:silver ratio of 45.1 puts silver at $111.11
- Gold @ $5,000 using the ratio of 14:1 puts silver at $357.14
Silver’s Potential Price Range With Gold at $10,000
- Gold @ $10,000 using the gold:silver ratio of 45:1 puts silver at $222.22
- Gold @ $10,000 using the ratio of 14:1 puts silver at $714.29
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 in the future than investing in gold bullion.
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