Investors Prefer Silver as GSR Breaks Downward


"Silver is reasserting itself as an investment metal in its own right."

There's been a significant amount of bullish commentary on silver in the media and, at last, it seems to be paying dividends for silver investors. Yesterday, silver broke through the $20/oz. the market was looking for as the gold:silver ratio (GSR) may have started falling back toward more average levels, which would be very positive for silver in the short to medium term.

Analysts note the historic GSR has been nearer 15 than the current 62.2 (gold at $1,272, silver at $20.45); but the role of silver has changed dramatically from being a true monetary metal to one that is driven more by industrial demand with precious metals overtones. The only time in recent years when the ratio got down to this level was in 1980, when the Hunt Brothers were trying to corner the silver market and the metal reached a heady $50/oz. Given the fate of the Hunt Brothers, this is a level unlikely to be repeated in the foreseeable future, but investors and analysts feel the recent year average in the GSR of around 55 may be attainable again—and, at the current gold price, this would put silver at around $22–$23/oz. at the current gold price, which is a much more realistic target. Of course, if the gold price does continue to move upward, as many are still predicting, then silver could be dragged up to even higher levels.

What does seem to have happened recently is a reassertion of silver's role as an investment metal in its own right. However, GSR watchers should be wary of one relatively recent fact. The silver bulls tend to harp on the historic 15:1 ratio, which is a hugely unrealistic target given the change in silver's role over the years.

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