If Gold Takes Off, Silver Even Better Bet


". . .should gold remain strong, we could see silver back over $20 before long."

Investors are beginning to move back into silver, as the perception holds that its more volatile price patterns will lead to better returns if gold also continues to improve.

If last week's surge in the gold price indicates that momentum is truly building to push the yellow metal into testing its December high point of $1226/oz., then silver investment looks a pretty good gamble.

Silver prices move pretty well in line with gold, but tends to experience more volatility on both the downside and upside; so if gold is in an upwards trend, then a parallel rise in the silver price could be much greater in percentage terms. Gold is currently only around 2% off its high, while silver is some 7.5% off its 2008 peak, suggesting that a run up in precious metals prices in general would likely see silver dominate in its rate of increase—and this could benefit silver holders even more should other gold forecasts—say of $1,500 by the yearend—be achieved.

Consider also the gold silver ratio. At the current price levels for each, the ratio is around 63:1. Historically, this price ratio has mostly been between 45 and 50 in recent years, again suggesting there could be a good catch up from silver ahead. Even at the current gold price level, a ratio of 50:1 would put silver at over $23/oz., which would represent a very sharp percentage increase from current values—though this change would not likely happen quickly.

But, as with gold, fundamentals in the current climate are a little difficult to judge with investment demand being such an important part of the equation these days.

As always, the primary driver for the silver price is gold and, all things being equal, should the gold price remain strong, we could well see silver back over $20 before long.

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