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So historically, there has been a value ratio between gold and silver, with gold typically being worth ~16 times as much as silver. This has been the status quo for well over a century as best my research can turn up, but right now gold is worth almost 40 times as much as silver. The question is, are gold prices too high or are silver prices too low? Would you expect silver to eventually rise to 1/16 the current gold price or would you expect gold to crash to meet 16x the current silver price?

Pure speculation, I know, and my holdings in precious metals are pretty evenly divided between the two but I'm posting out of pure curiosity what the temperature of the market is at present.

Silver is undervalued while gold is overvalued. Gold is spiking because of this debt crisis talk.

Ah, that's an option I hadn't considered... I'll add it to the available choices :)

15x is not the historical ratio, at least not for quite a while.

Here is the last 20 years of the gold-silver ratio:

http://goldprice.org/charts/history/gold_all_data_silver.png

I will *never* touch silver again because of the Hunt brothers debacle. It will happen again.

Silver overvalued and I did not find that one in the options listed.

Added. The options are growing thick up there...

The last 20 years doesn't undo the last 200 though. Bubbles have been known to last longer from time to time.

Hi Smalleyster, what happened with silver? are you talking Physical or Paper Contracts?

Thanks!

http://en.wikipedia.org/wiki/Silver_Thursday

http://en.wikipedia.org/wiki/Nelson_Bunker_Hunt

http://en.wikipedia.org/wiki/Cornering_the_market#1970s:_The_Hunt_brothers_and_the_silver_market

http://en.wikipedia.org/wiki/Silver_as_an_investment

I bought at $15 and had to sell at $7

Never again!

Hey thanks for that link to wikipedia, proves my point even more!

Year   Silver price (yearly cum. avg.[8])
US$/ozt   Gold price (yearly cum. avg.[9])
US$/ozt   Gold/silver
ratio
1840   1.29   20   15.5
1900   0.64   20   31.9
1920   0.65   20   31.6
1940   0.34   33   97.3
1960   0.91   35   38.6
1970   1.63   35   22.0
1980   16.39   612   37.4
1990   4.06   383   94.3
2000   4.95   279   56.4
2005   7.31   444   60.8
2009   14.67   972   66.3
2010   20.19   1225   60.7
2011 (cum. thru 19 May)   39.22   1510   38.5

The gold-silver ratio hasn't been 15-to-1 for over 100 years according to that chart.

Who cares about the ratio? If you invest in silver you are setting yourself up to be Hunt'ed!

i think both are overvalued as is platinum and palladium. as much as id love to buy into precious metals, i think they are in a bubble right now...prices got driven up during and after the housing/banking crash from a influx of new investors...

The poll is missing an option:

Silver is seriously undervalued while gold is slightly undervalued.

In my opinion, this is the correct scenario.

Well, that IS the topic of the thread...

“The Hunts Tried to Corner the Silver Market” Myth

https://meltdown2011.wordpress.com/2008/08/20/the-hunts-tried-to-corner-the-silver-market-myth/ (https://meltdown2011.wordpress.com/2008/08/20/the-hunts-tried-to-corner-the-silver-market-myth/)

"Is it too much to ask, if you buy a car from a guy, and you pay him the cash and he signs over the title, that you might get the car? This, ladies and gentlemen, is all the Hunts ever asked. They did not ever “corner” the silver market. All they asked was for the bullion dealers to keep their promises, and deliver."

why? i want to hear from anyone that feels that precious medals are undervalued....i seriously would love to be able to justify buying in right now, but the market seems waaaaay overvalued to me.

I believe that precious metals are currently undervalued.  More to the point, I believe that the US dollar is currently overvalued (which is the same thing).

The bull market in commodities in general, and PMs in particular, is driven by fundamentals relating to the US dollar, specifically US monetary policy.  The fundamentals have not changed.  If anything, they are accelerating.

As long as the Fed continues injecting liquidity (read: inflation) into the economy through quantitative easing, bailouts, and other programs, whilst simultaneously keeping interest rates artificially low, the USD is going to continue to undergo currency devaluation.

The bull market in PMs in the 70s correlated very strongly to the stagflation of the period.  The bull market in PMs only ended when they brought Volcker in as Fed chairman who raised interest rates to 20%.  I don't see the current bull market in precious metals ending until/unless we see a similar rise in interest rates.

How can ANYONE compete against massive industries that need silver?  Silver is the best conductor of electricity. It not like the 80s when there was no electronics. Silver is every where now, Biomedical (silver kills bacteria), electronics,  even xray film is silver. There is a limited supply and we are eating through it (industries) quite rapidly.  Gold on the other hand gets mined and put in a vault so we know it is still there not being consumed.  I understand the whole thing that happened with silver before but I do not see anyone large enough to compete with corporations that need it for their gear.

Agreed. They keep pumping the dollar , commodities keep going up up and away.  Look at the dollar index it is so low even before the debt talks.

this may be a stupid question (i am certainly not an economist)... but,  if USD is overvalued, then why is the exchange rate with the euro roughly the same as it was a few years ago? (it was @ 1.5 USD>Euro and it now exchanges @ 1.4) wouldnt an overvalued dollar trade at a better rate (ie 1 usd>1 euro) especially with the euro supporting the failing economies of greece, ireland, etc?


or am i completely missing something here?

The Euro is in the shitter too because of all the bullshit with Spain, Italy, Greece and all the "bad" countries in the Eurozone.  So if both go down both stay equal.

but shouldnt the euro have sunk lower faster than usd, particularly since it is supporting multiple failing economies?

Last I read the Eurozone if it wanted to support Spain, Italy, Greece and all the other FAILs it would need to "Create" 1 trillion dollars. That amount is literally for every single country to be a-ok.  (No matter cause Greece has already done a partial default.)

USA has 14.7 trillion debt and climbing. We have just hit 100% GPD to Debt ratio which is what some economist consider the "tipping point".

(for comparison I think Greece was 160%)

Better strategy would have been to buy more silver when the price went low rather than selling at a loss, but when you need the money you need the money though I guess.

The Hunt brothers attempted to use margin. This was their weak point.

Nowadays, the world's silver inventories are being depleted by people actually buying real, tangible silver, paying in full, and physically removing it from the market. There's no singular target to go after anymore. A sudden change in COMEX rules won't stop folks from continuing to buy from their coin shops. And the internet is informing everyone of the true fundamentals. Even the Chinese are becoming eager buyers of silver.

The suppression of the price of silver will be the end of the global bankers.

It's wrong that they've been able to keep their ponzi scheme afloat for so long. But it seems clear to me that a change is imminent.

In answer to the original question, I don't believe there's anything magical about historical ratios of gold and silver prices. There are strong cultural reasons to believe that both metals will continue to be valuable but cultural ties to historical price ratios are probably much weaker in a lot of places. There seems to be a resurgence of interest in Islamic banking though which does operate on a fixed ratio of gold and silver prices from what I understand.

I accidentally voted for #4, meant to vote #1

I'm surprised that no one has mentioned that silver has been in backwardation for months.  That suggests physical silver is in tight supply.

Seems like the general concensus is that silver will rise. Perhaps that's just optimism bias but if so optimism is a stronger force than I'd imagined :)

I think tin is undervalued, or rather the food preserved within.

electronics use copper for pretty much everything
silver only conducts slightly better and is barely used at all in electronics

My understanding is that 40% of available silver is used in industry and that reserves are at historic lows. Perhaps alternatives are readily available? Anyway, here are recent gold/silver price ratios:

http://goldprice.org/charts/history/gold_5_year_silver.png?0.509520499107809

http://goldprice.org/charts/history/gold_all_data_silver.png?0.8461263710747067

Anecdotal evidence suggest there is one ounce of silver per 1000 cell phones. So yeah, there's barely any silver in ONE cell phone.

The point is, everyone has a cellphone or two, and we replace them probably once a year on average.

So, lets say one third of the planet owns a cell phone. 2 billion phones. That's 20,000 ounces of silver gone every year. Most of it will never be recovered.

That just for starters. Photographic film, solar panels, TV screens, ipods, microwaves, GPS, the list is endless. Is 200,000 ounces lost per year a reasonable number? That's two million ounces every 10 years, and the numbers will creep upwards.

The other problem is that because the amount of silver used is so small per device, even a large spike in the silver price would not cause a rise in electronics prices. So consumers will continue to buy, and factories will continue to produce.

How much silver is left in the ground? 100% of annual silver production is consumed in some form. There are no mining reserves left over.

Silver Has Risen Well today in Australia

silver and gold sre overvalued and will soon drop in dollar terms.
Silver will fall faster snd deeper than gold

How is that so S3052? please explain?

How are they overvalued also?

let me briefly try.
(I am on my mobile device and can't post graphs that would be needed to illustrate.)

Silver has been underperforming gold since april 2011 and has been shown above in this thread via the gold/silver ratio
Silver is also a very good leading indicator fir the broader financial market (stocks, etc). This underoerformance is a key element which I use in firecasting.
As long as silver remains below the 50$ mark,silver is in the first stages of amultiyear bear market.
Gold will remain a little strongezr than silver because gold is a safer heaven than silver in the financial crisis #2 we are already in.
But gold will also at least initially fall hard due to the needed deleveraging of financial institutions and individuals.
Basically I am saying that in this second leg of the financial crisis, all markets go down together, just some will fall a bit less

Target for silver is first the 27-30$ zone and then single digits by 2014-2016.
Gold will likely at least test the 1000$ mark before moving to record highs into 2000-5000 and even higher..

I am sorry I do not agree. The Feds will continue to print fiat money and pumping it into our system.

http://www.kitco.com/LFgif/au75-pres.gif

Gold 75 to 2011

http://www.kitco.com/LFgif/ag85-pres.gif

Silver 85 to 2011


They are heading all one way UP!

Personally I find it ridiculous that gold is where its at but the market does have a "herd" mentality and every crisis sparks everyone running to gold. When silver is in tighter supply than gold.

If you look at the data for silver in 2008 just as we were going into the recession it dropped. Personally I feel we are walking into another recession so if silver drops it will create a great BUY opportunity because when the economy of the world takes off the industries mentioned will need silver and will be willing to pay big bucks for it.

Fully disagree and we can at least agree to disagree :-)
What you are saying is what 99.9% of people believe. Hence, it is too late now, and the opposite will happen. I will bet 5 BTC with you that Silver will drop below 30 $ by Jan 12 and another 5 BTC for a drop below 10 $ somewhere between 2012 and 2015.

And by the way, you do not show the full (and most important) chart history: The previous Silver high of 50 $ in 1980. This means that Silver did not gain at all vs. this high, and when accounting for inflation, Silver today is down massively vs. 30 years ago..

Take a look at what's going on with the Swiss Franc, which has been at historic levels compared to the USD and Euro.  They are purposely devaluing CHD.  It should be noted that if you chart gold vs CHD, you will see that gold has not appreciated like it has versus other currencies.


Gold is essentially the last monetary proxy which has not been overtly tampered with (it is not under any particular government's jurisdiction and, with the exception of guys like GS and Soros, no goverments really have much interest in its value - so at least government intervention is not an issue).  You can make a similar argument for silver. 

In 1980 US minimum wage was about $3.10/hour on average (in 1980 dollars). If silver rose to $50/ounce then, it would cost two days wages to buy an ounce of silver. If minimum wage today is set at $7.25/hour, then a silver spike equivalent to 1980 would bring silver to $116/ounce in 2011 dollars.

Are you telling us that silver has LOST value against the US dollar, after 30 years of non-stop printing of money?

Or is silver under-valued?

You decide.

Great comment. They more pushback I get the more convinced I get that I am on the right side. And this has guided me and subscribers very well through the bitcoin swings, but also myself throughout the last decade of financial markets, using only technical patterns.

Great answer.  ;)

But I would like to hear your response.

The USD goes to shit in 30 years, and silver follows?

Has silver become more abundant?

Have we found replacements for silver in industry?

Why are you so bearish on silver?

"Don't hoard your silver coins, it will never be profitable." US President Johnson, 1965

He says this precisely because silver bullion was becoming too valuable to describe a shit US dollar, as the mint was in the process of changing to copper-clad coins.

http://news.google.com/newspapers?id=3P1OAAAAIBAJ&sjid=XgEEAAAAIBAJ&pg=4613,3314165&dq=don-t+hoard+your+silver&hl=en (http://news.google.com/newspapers?id=3P1OAAAAIBAJ&sjid=XgEEAAAAIBAJ&pg=4613,3314165&dq=don-t+hoard+your+silver&hl=en)

Richard M Nixon on inflation, 1972: "Gas will NEVER a dollar a gallon.....Bread will NEVER be a dollar a loaf ! "

Great discussion. Sorry for not being more detailed in my answers, I am working on a few important things. But o.k. here is my explanation attempt.
I am not really good at fundamentals, hence, my explanation might sound layman-ish. I am much better at charting but can't do an analysis now.
The main reason why I am bearish Silver is:

Silver prices have skyrocketed this year mainly behind speculation, which is not justified by the industrial value. This speculation is largely via leveraged tools, and in the current and more severe upcoming crash/crisis, people need to sell stuff to pay their bills, and this includes leveraged Silver derivatives. And Silver is not alone, as all assets will plummet in the midst of this historic crash.

And even if the current price seem to be justifies because of industrial use, this will also change as the economy falters and Silver demand shrinks..

Overall, midterm, over the next couple of years, this will drag Silver down.
Longterm I am relatively bullish Silver. It will be the first indicator that the crash is over. It is wise to keep some physical Silver even if it goes doen in dollar terms. If Silver rises again strongly from low single digits, then a new bull market starts. But based on my longterm time studies, this will not be before 2014.

And here is an example on how I see Gold prices.
http://chart.ly/hi5cdqh (http://chart.ly/hi5cdqh)

5 completed Elliott waves. Perhaps a couple of $ more upside, then big correction.

Silver also completed 5 Waves up, but started its decline already in April 2011, again a leading indicator, and hence leading Gold as well.

Fair enough. Your analysis seems reasonable. (I'm no expert).

There are a couple of factors that I believe could play in factor in changing the game.

1. Shortages. There is a lot of investment demand right now. In the USA retail silver sales are through the roof.

http://images.angelpub.com/2010/24/5052/2010_investing_in_silver_2pngpng.png

2. Large players coming to market. China, for example. Their government are bullish on silver.

http://dont-tread-on.me/wp-content/uploads/2011/05/CHINA-SILVER-IMPORT.jpg

3. Economic crash could result in a mining and exploration crunch. With silver already in a tight situation, this would be a very bullish event. All of the world's annual silver mining production is consumed in some way.

http://www.silverinstitute.org/images/stories/silver/demand11.jpg

As we can see in 2008, industrial demand was about the same as the previous year and dropped about 20% the following year. The silver price dropped 50% a year early, in anticipation of the this. However the following year, 2010, silver rebounded very strongly, and although industrial demand did not increase from 2007 levels, total consumption (and price) rose sharply in part due to investment.

http://static4.businessinsider.com/image/4dd02cefccd1d56e3d0e0000/silver.png

To me, this graph is misleading, as investment and industrial are not the only two categories. But it does tell a tale of a short-term decrease in the significance (but not necessarily the physical amount) of industrial consumption, yet some of that same silver is lost forever in the processes of industry.

I am glad we can discuss this without the usual shit talking of this forum.
I do not see the big deal about the 50$ run up in 1980 since it was being manipulated and that is why i did not see the big deal. Also I do not think such a thing can happen again especially with the raising capital needed to hold a silver position. 




I agree with you in the sense that we can go into a dip but I do not agree on how low you speculate. Because people are actually starting to accept silver as payment for goods (instead of dollars!!). Maybe not for paying bills but I have been to a number of privately owned grocery stores that accept silver.


Agreed but not to single digits IMO


My only concern is I think you underestimate how "crazy" people can get if they do not feel safe with cash (fiat) (paper) w/e you want to call it and may start to throw their millions into gold/silver. (millionaires silver , billionaires gold lol ) That is why I feel silver even with weak demand from industry might continue going high even when we go into this second recession (depression) [another thing we both agree will happen]

Wow. this goes way back.. So you buy in at $15... ride it all the way to over $40 - almost 300% gain. But when the thing crashed, you couldn't get out in time and got out when it bottomed at $7?? Didn't the crash took several days?

He probably had to sell all his 3 ounces.

LOL! I was feeling big and bold and was going to ride it out a little more and planned to buy a new car. Counted them chickens long before they hatched. Back then in the Bahamas we tracked the price of stuff in the newspaper. IIRC it was 10 in the paper but by the time I got the silver out of the safety deposit and to the dealer he offered me 7 and I sold it all.

"Treat people nice on your way up. You will see the same faces on your way down."

Sorry, I'm abrasive by nature.

Why sell your silver at $7 when you bought at $15? That's not a fault of the silver market. And it certainly wasn't the Hunt's fault. The blame lies with the US government for the Hunt debacle. The same government that is now backing the dollar that everyone holds so dear. The USD will be shit soon, and its been a long time coming.

There is only so much silver to go around.  Free market structure allowed the price to go to $50. Market manipulation by the US Government is what cause the price to collapse. If they had not intervened, I suspect the price would be at around $100 today.



That's way off. Silver is one the smallest commodity markets on the planet. Annual world silver is 800m or so ounces. Times $40 an ounce = 32bn dollars. Bill Gates could buy up over a year's supply of silver. Lets compare that to the crude oil market. With the price of oil at 92$/barrel, and daily US consumption at 14m barrels a day, Bill Gates can only buy about 25 days of oil production for USA ONLY with that same 32bn dollars!

Or, if you prefer, if 1 million people invest just $32,000, they could buy up ALL of a years silver production. Which of course CAN"T BE DONE because you can't just go out and buy 800,000,000 ounces of silver, it would take 6 months at least. The price would go to the moon. $1000/ounce, easily. It happened with palladium, which started under $100 and reached an all-time high of nearly $1100/ounce. Mostly due to shortages.

http://www.kitco.com/LFgif/pd92-pres.gif

What's the easiest way to buy Palladium? I know it is a favoured 3rd PM.

Yea I see what you mean that manipulation was the cause for it to come down not up.



My opinion was that I do not believe it could be manipulated to go low again (not high). I agree the market for silver is extremely tight. Great input though gives me a new perspective.

Oh, I misunderstood then.  ;)

Big intraday turn down today. Looks like the start of the Silver desaster.

There are people waiting to buy.

I know I am.

When I look at the metals and oil charts I am struck by the huge correction in 2008. Whether crude, platinum, or silver, they all drop by about half their previous price. Except gold.

http://www.kitco.com/LFgif/ag2008.gifhttp://www.kitco.com/LFgif/pt2008.gifhttp://www.kitco.com/LFgif/au2008.gif

What if the opposite happens this time, since everyone is expecting it? Silver is a small market, and can be easily influenced in both directions.

Industry is turning down production in response to recession. Less people driving, thus demand for all the industry commodities go down (crude, platinum, and silver)

This is a good comparison, with the exception that this time the metal drop will be more severe. Probably down -80% to -90%, except for Gold, which may only drop -20 to -50% in dollar terms.

I don't get your logic (unless you are purely and stubbornly contrarian). It is precisely for this lack of correction that I am bearish gold and bullish everything else heavy.

We do not have to agree. I am short stocks since DJI 12,600, silver since 43$, EURUSD since 1.47 and those trades run well, and I will stay midterm in those positions (probably until 2014-2016); and additionally do some hedging and playing short term bounces.

Silver Wheaton (NYSE: SLW) is my silver play.  It was down 8.6% today so I opened a position.  I have some physical bullion but I'm not a big end of the world type person so I'm content with owning the miners.  Maybe I'm trying to catch a falling knife, we'll see.

Let's see how it plays out. I shorted Majestic Silver (NYSE: AG) two days ago at 24$. Now down -12 %.