MunKnee.com: Silver’s Historical Correlation with Gold Suggests A Parabolic Top As High As US$714 per Ounce!
The current price of gold and the price of silver – the silver:gold ratio – continues to hover around the 67:1 range which is way out of whack with the historical relationship between the two precious metals. It begs the question:
“Is now the perfect time to buy silver instead of the much more expensive gold metal?”
It is critical to step away from all the noise and clutter that passes for knowledge and take the time to gain perspective on where the price of gold and silver are in terms of the ‘big picture’, i.e., where they are in respect to their historical relationship with each other over the long, medium and short term and, based on those relationships, how they might perform in the future.
Bull Market Stages
The key to a secular gold/silver bull is the collective gold/silver transactions of investors worldwide buying and selling gold/silver that ultimately sets the price and determines their fortunes. The collective demand trends of gold/silver investors effectively divide precious metals bulls into 3 distinct demand-driven stages, namely:
1. Stage One which occurs when a devaluation of the dominant currency in which gold is priced, i.e. the USD, leads to a moderate increase in the price of gold. Stage One for gold began on February 15th, 2001 when it reached a 22-year secular low of just US$255.10.
2. Stage Two which occurs when the decoupling of gold from local-currency devaluation begins to outpace the dollar’s losses and gold starts rising significantly in virtually all currencies worldwide. Stage Two began on June 5th, 2005 when gold (at US$417.67) first surpassed 350 Euros for the first time.
3. Stage Three which occurs when the general public around the world starts investing in gold and this deluge of capital into gold causes it to escalate dramatically (i.e. to go parabolic) in price. We are approaching Stage Three and it will become clearly evident when the price for gold begins its daily record ascents to dramatically higher prices.
Gold
We are now in the very early stages of Stage Three with gold having gone up 24% in 2009 and up 13.3% in the first 6 months of 2010. As such there are no shortage of prognosticators who see gold going parabolic reminiscent of 1979 when gold rose 289.3% in the course of just over a year (from a US$216.55 closing price on Jan. 1, 1979 to a closing price of US$843 per ounce barely a year later on Jan. 21, 1980) and 128% higher in a late-1979 parabolic blow-off of just under 11 weeks! A 289% increase in the price of gold from US$1250 would put gold at $4,866. 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.
Silver
Silver has proven itself, time and again, to be a safe haven for investors during times of economic uncertainty and, as such, with the current economy in difficulty the silver market has become a flight to quality investment vehicle. The 49% increase in silver in 2009 attests to that in spades (albeit up only 10% in the first 6 months of 2010). During the last parabolic phase for silver in 1979/80 silver went from a low of US$5.94 on January 2nd, 1979 to a close of US$49.45 in early January, 1980 which represented an increase of 732.5% in just over one year. Such a percentage increase from the current price for silver would represent a future parabolic top price of US$155. Frankly, such prices seem impossible in practical terms but that is what the numbers tell us.
Silver:Gold Ratio
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 which is called the silver:gold ratio.
Based on silver’s historical correlation r-square with gold of approximately 90 – 95% silver’s daily trading action almost always mirrors, and usually amplifies, underlying moves in gold. With significant increases in the price of gold expected over the next few years even greater increases are anticipated in silver’s price movement in the months and years to come because silver is currently seriously undervalued relative to gold as the following historical relationships attests.
Let’s look at the silver:gold ratio from several different perspectives:
- Over the past 125 years the mean silver:gold ratio (i.e. 50% above and 50% below) has been 45.69 ounces of silver to 1 ounce of gold.
- In the last 25 years (since 1985) the mean silver:gold ratio has increased to 66.9:1
- The present silver:gold ratio is range-bound between 63:1 and 70:1 (66.77:1 at the end of June 2010).
- Interestingly, during the build-up to the parabolic blow-off in 1979/80 silver outpaced gold going up 732.5% vs. gold’s 289.3% causing the ratio to drop from 38:1 in January 1979 to 13.99:1 at the parabolic peak for both metals in January,1980.
Conclusions:
There are many! Let’s look at the various price levels for gold and the various silver:gold ratios mentioned above one by one and see what conclusions we can draw.
First let’s use the mid-year (June 30th, 2010) price of $1243 for gold and apply the various silver:gold ratios mentioned above and see what they do for the potential % increase in, and price of, silver.
Gold @ $1243 using the current 66.77:1 silver:gold ratio puts silver at $18.61 (June 30/10)
Gold @ $1243 using the above 45.69:1 silver:gold ratio puts silver at $27.20 (i.e. +46.2%)
Gold @ $1243 using the above 13.99:1 silver:gold: ratio puts silver at $88.85 (i.e. +377.4%)
Now let’s apply the the silver:gold ratio to projected gold prices of US$10, 000, US$5,000 and US$2,500 respectively to see what that suggests is the parabolic top for silver.
@ $10,000 Gold
Gold @ $10,000 using the silver:gold ratio of 66:1 puts silver at $150
Gold @ $10,000 using the silver:gold ratio of 45:1 puts silver at $222
Gold @ $10,000 using the silver:gold ratio of 14:1 puts silver at $714!!
@ $5,000 Gold
Gold @ $5,000 using the silver:gold ratio of 66.1 puts silver at $75
Gold @ $5,000 using the silver:gold ratio of 45:1 puts silver at $111
Gold @ $5,000 using the silver:gold ratio of 14:1 puts silver at $357
@ $2,500 Gold
Gold @ $2,500 using the silver:gold ratio of 66:1 puts silver at $38
Gold @ $2,500 using the silver:gold ratio of 45:1 puts silver at $55.50
Gold @ $2,500 using the silver:gold ratio of 14:1 puts silver at $178.50
From the above it seems 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.
Summary
History will look back at the artificially high silver to gold ratio of the past century as an anomaly, caused by the dollar bubble and the world being deceived into believing that fiat currencies are real money, when in fact they’re all an illusion. This fiat currency experiment will end badly in a currency crisis. The wealthiest people will be those who bought silver today and were smart enough to research and pick the best silver mining stocks and warrants.
Indeed, while gold’s meteoric rise still has room to run, silver’s run is yet to get started. As such, it certainly appears evident that now is the time to buy all things silver.
Source: MunKnee.com
Disclaimer: Please be informed that the above mentioned stocks/indexes/investment instruments are solely for the purpose of education; it is NOT a recommendation or an invitation to trade/invest. For trading/investment advice, please speak to your remisier, dealer representative or financial adviser. Please understand that there is risk in every trade/investment venture, know your risk first before you venture into any of them.
World Collapse Explained in 3 Minutes!
Marc Faber Sees ‘No Huge Downside Risk For Gold’, More Sovereign Defaults
Marc Faber, the Swiss fund manager and Gloom Boom & Doom editor said the governments of every developed economy will eventually default on their sovereign debts, so the one thing he will never do in his life is ’sell my gold.’
Potential defaulter include the US, the UK and Western Europe.
Speaking to CNBC in a live interview via telephone, Faber said: “In the developed world we have huge debt to GDP, in terms of government debt to GDP and unfunded liabilities that will come due. These unfunded liabilities are so huge that eventually these governments will all have to print money before they default,” he added.
Speaking at Russia’s Troika Dialog Forum in Moscow last week, Faber said: “I’m convinced the US government will go bankrupt, but not tomorrow, and before they do they will print money and you’ll get a depression with very high inflation rates.”
“If you ask me about the correction in the gold market, sure, we already corrected 10% from the peak and it could last somewhat longer. But when I look at Mr.Obama, Mr.Bernanke, Mr. Tim Geithner and Mr. Larry Summers, the one thing I will never do in my life is sell my gold.”
In an interview with Bloomberg Television in Hong Kong on Thursday, Faber reiterated he doesn’t see a “huge downside risk” for gold. “I won’t rule out that gold will go down to US$950 or US$1,000, but I don’t expect more downside.” “I don’t see any scenario where gold will collapse,” he added.
The famed investor told Bloomberg the Euro may rebound to US$1.40 against the US dollar because the currency is currently “oversold” amid concerns over Greece’s deficit, the largest in the European Union. “The region, along with the European Central Bank, will probably “bail out” the country, in turn creating more deficits” he also said.
“When Greece is bailed out, it’s a further indication that paper money is losing its purchasing power because it’s diluted through larger and larger bailouts and more and more deficits,” Faber said. “Now it can rebound to around US$1.40 but more than that, you shouldn’t expect.”
Any other recommendations?
“Other commodities haven’t gone up yet, such as the grains,” he said. “It may take time until they start to go up substantially but if you have time, you should be long wheat, corn, soya beans or own a farm, which is one way to participate in future food price increases.”
The global stock markets, which have mostly fallen about 10%-20% from their peaks, have begun a correction phase that Faber expects to continue. He said he thinks the new resistance level for the S&P 500 will be 1,100, though an oversold market could cause a relief rally over the next ten days.
Faber has said in many interviews that he sees dips in gold as an opportunity to buy some more bullion. But how long can the gold bull market last? “The gold bull market will come to an end when sovereign wealth funds – sick and tired of their investments in financial stocks – will finally purchase gold,” wrote Faber back in January 2008 in his Gloom, Boom & Doom report.
Source: BI-ME (Posted: Thurs, February 11, 2010 6:38 pm)
Disclaimer: Please be informed that the above mentioned stocks/indexes/investment instruments are solely for the purpose of education; it is NOT a recommendation or an invitation to trade/invest. For trading/investment advice, please speak to your remisier, dealer representative or financial adviser. Please understand that there is risk in every trade/investment venture, know your risk first before you venture into any of them.
Gerald Celente-There Is NO Economic Recovery – Its A COVERUP!!
Gerald Celente, a trend expert, visionary, keynote speaker, is trusted worldwide as the foremost authority on forecasting, analyzing and tracking trends. Celente is the publisher of the Trends Journal® and author of Trends 2000 and Trend Tracking. He is on the record for accurately forecasting and naming the current “Great Recession”; for forecasting the 1987 Stock Market Crash, the Dot-com bust, Gold Bull Run to Begin, 2001 Recession, the Real Estate bubble, the “Panic of ‘08″, Tax Revolts, the coming “Greatest Depression” and many more social, economic, business, consumer and geopolitical trends…
Global Market Outlook for Week Beginning 21st September 2009
Straits Times Index(STI) is currently facing a strong resistance at the 2700 level. If this ceiling can be broken, 2746 will be the next stubborn resistance. If 2746 can be penetrated successfully, STI may have a chance to hit 3000 before 2009 closes. I do not foresee STI can rise beyond 3000 level by the end of 2009 because the still sluggish real economy simply DOES NOT allow this scenario to play out. In fact, for STI to rally 86% since the March low of 1455, it has already run up too much and too fast ahead of the real economy.
3000 proves to be a very tough resistance level for Shanghai Stock Exchange(SSE) to crack. It may hover between the 2600 and 3000 consolidation range for some time before it resumes its uptrend to retest the early August high of 3748. The recent 23% correction for SSE is actually a good healthy correction, but it DOES NOT signal a reversal in the long term uptrend for the China stock market.
Since early March till now, HangSeng Index(HSI) has rebounded 93% and it has just broken its early August high of 21200. With this strong momentum, HSI should have a high chance to head further north towards the next 23300 and 26300 resistance levels before 2010 comes.
S&P 500 has just penetrated the 1060 barrier and the momentum should see it climbing higher towards the next resistance level of 1168. From the low of 666 in early March, it has only rallied 61% as compared to the impressive rally of 109% for SSE, 93% for HSI and 86% for STI.
NASDAQ is now approaching a strong ceiling at 2167. Since early March, it has staged a gain of 69% from its low of 1265, beating Dow Jones and S&P 500 in term of % increase.
Dow Jones is now moving feebly towards the critical 10,000 level. This will prove to be a very very DIFFICULT level for it to break. It has only rallied 52% from its low of 6469 and is the laggard among the 3 major US indexes.
As we can observe, the Asian markets have outperformed the US market since the start of the market rebound. I believe Asia, especially China and India, and emerging markets will lead the world’s recovery from the financial crisis, instead of the usual US and Europe. Just to quote what billionaire investor and commodity guru, Mr Jim Rogers, had mentioned: “19th century belonged to UK, 20th century belonged to US, 21st century belongs to Asia, especially China”. With US dollar weakening as each day goes by and possibly high inflation coming up, I will prefer to invest my money in Asia and commodities, eg. gold, silver, oil, precious metal, agricultural product…etc, rather than in US and Europe.
Disclaimer: Please be informed that the above mentioned stocks/indexes/investment instruments are solely for the purpose of education; it is NOT a recommendation or an invitation to trade/invest. For trading/investment advice, please speak to your remisier, dealer representative or financial adviser. Please understand that there is risk in every trade/investment venture, know your risk first before you venture into any of them.
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