…Those who prefer silver always seem to think the ratio of gold to silver is going to reverse “soon” – and it might; maybe significantly so, too – but there are no fundamental reasons for the ratio to move up or down at any given time [and, as such,]…there is no reason to track it, either…
Those who love silver think:
- it is correlated in some way with gold; its not,
- that silver is cheap relative to gold (it is), so it must be a better buy (it’s not).
[That being said, however,] what if there was a correlation; or inverse correlation? Shouldn’t we see something on a chart that would indicate such?
Below is a chart of the gold-to-silver ratio over the past one hundred years:
- I’m not sure what positive factors the proponents of a lower ratio that favors silver see in this.
- What I see is
- a ratio that continually moves higher over time, favoring gold, since 1967, with two extreme exceptions occurring in 1980 and 2011, when both metals peaked with a very short-lived (a few months) advantage to silver.
- Otherwise, there is a pattern of higher highs and higher lows which continue to favor gold.
NO HUGE DECLINE IN GOLD-SILVER RATIO
In looking at the chart, you might think there is a possibility of a repeat performance from last century when the ratio declined from 97 to 17 between 1940 and 1967. Don’t bet on it.
During that period silver was in high demand because of its industrial value. Also, the price of gold was fixed at an artificially low level.
Surprisingly enough, there a is a scenario that might result in a lower gold-to-silver ratio…
I believe it is possible that:
- the efforts of the Federal Reserve
will[would] be offset by a huge decline in all asset prices…[and were that to, indeed, happen]
- there then wouldn’t be enough dollars to go around, no matter how much QE we got [i.e. we would have deflation]…in which case,
- the USD, i.e. cash, would enjoy a longer period of relative strength
- and that, in turn, would mean a corresponding decline in the price of gold.
If the decline in gold’s price is more rapid than silver’s respective price descent, along with all other asset prices, then the ratio would decline, favoring silver.
At some point, however, silver, because it is primarily an industrial commodity, would come under more extreme pressure because of the slowdown in economic activity. Hence, any decline in the gold-to-silver ratio from this point (it is now at 120:1 – wow!) would likely be temporary and short-lived; which is amazingly consistent with its historical pattern in the chart above.
SILVER HEADED BELOW $10
Below is another chart which shows a one-hundred year history of silver prices, adjusted for inflation…
The recent 3-week decline in silver is clearly evident on the chart and is very discouraging if you are a silver bull. In fact, there is absolutely nothing to indicate higher silver prices are even remotely close. From its intraday high of $18.91 on February 24th to its intraday low of $11.78 on March 16th, silver’s decline amounted to 38%!
- It appears that silver is headed straight for familiar territory below $10 per ounce, where it could stay for several years…
- It might [even] go below $5 per [troy] ounce, though, and last for decades if the economy were to enter a depression (not recession).
Editor’s Note: The original article by Kelsey Williams has been edited ([ ]) and abridged (…) above for the sake of clarity and brevity to ensure a fast and easy. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.
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