Historically speaking the price of gold has had a 30X1 price relationship with silver. Now it is currently trading for about 46X as much but recently was trading much higher However, the ratio has been plummeting, so how low can the gold to silver ratio go?
Could it ever return to its historical average of 30:1?
If so, we'd have to see one of the following occur:
* Gold would need to plummet to less than $1000/oz., with silver remaining stable at around $30.00/oz.
* Or, silver would need to gain another 50% to over $45.00/oz., while gold holds
steady at $1400.00/oz.
* In perhaps the most likely scenario, gold would need to see some retrenchment
combined with continued strength in silver.
The idea of gold plummeting back below $1000 without affecting silver or silver doubling to $45 with gold holding steady is pretty unlikely. However, there is some support for the possibility we might see silver prices decoupling from gold's coattails. Back when gold broke the $1,000 mark for the first time, in March 2008, silver was trading about $20/oz, or 50X1.
Today's disparity in price could indicate silver may be undervalued at the moment by historical standards.
In addition, silver's fundamentals are improving. With around 50 percent of silver demand coming from industrial applications such as batteries, electrical switches and other components, analysts have predicted that as the economy recovers so will demand, thus pushing silver prices even higher.
The biggest trick of all, if you play the spread, is to avoid trading a quarter for two dimes! The best and safest way to play is with Hecla Mining, ticker HL. If precious metals stay at these levels this company's profits will explode!
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