By: Lorimer Wilson
108 respected economists, academics, analysts and market commentators are of the firm opinion that gold will go to $2,500 and beyond before the parabolic peak is reached. In fact, the majority (75) think a price of $5,000 or more -even as high as $15,000 – is actually more likely. As such, just imagine what is in store for silver given its historical price relationship with gold.
Let’s look at the gold : silver ratio from several different perspectives:
– Over the past 125 years the mean gold:silver ratio (i.e. 50% above and 50% below) has been 66.9 ounces of silver to 1 ounce of gold.
– In the last 25 years (since 1985) the mean gold:silver ratio has increased to 45.69:1
– The present gold:silver ratio has been range-bound between 60:1 and 70:1 (58.8:1 as of October 6/10).
– 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.
Let’s now 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 a present term price of $1,350 for gold and apply the various gold:silver ratios mentioned above in approximate terms and see what they do for the potential % increase in, and price of, silver.
Gold @ $1,350 using a 58.8:1 gold:silver ratio puts silver at $22.96
Gold @ $1,350 using the above 45:1 gold:silver ratio puts silver at $29.54
Gold @ $1,350 using the above 14:1 gold:silver ratio puts silver at $96.50
Now let’s apply the projected potential parabolic peaks of $2,500, $5,000 and $10,000 to the various gold:silver ratios and see what they suggest is the parabolic top for silver.
@ $2,500 Gold
Gold @ $2,500 using the gold:silver ratio of 59:1 puts silver at $42.37
Gold @ $2,500 using the gold:silver ratio of 45:1 puts silver at $55.50
Gold @ $2,500 using the gold:silver ratio of 14:1 puts silver at $178.50
Before we go any further the above analyses bears closer scrutiny. In paragraph four above it was noted that “During the last parabolic phase for silver in 1979/80 it went from a low of $5.94 on January 2nd, 1979 to a close of $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 of almost $23 would represent a future parabolic top price of $191.
It is interesting to note that the above $191 is almost identical to the $178.50 that occurred at the peak price level for gold and silver back in January, 1980. For the gold bugs who believe that gold is going to go even higher it can only mean a very much higher price for silver as the analyses below suggest.
@ $5,000 Gold
Gold @ $5,000 using the gold:silver ratio of 59.1 puts silver at $84.75
Gold @ $5,000 using the gold:silver ratio of 45:1 puts silver at $111.11
Gold @ $5,000 using the gold:silver ratio of 14:1 puts silver at $357.14
@ $10,000 Gold
Gold @ $10,000 using the gold:silver ratio of 59:1 puts silver at $169.49
Gold @ $10,000 using the gold:silver ratio of 45:1 puts silver at $222
Gold @ $10,000 using the gold:silver ratio of 14:1 puts silver at $714!!
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.
see also: Get Out of the Dollar & Into Tangibles
Legendary global investor and chairman of Singapore-based Rogers Holdings, Jim Rogers believes commodities stand to benefit whether the economy rebounds or not.
Speaking in a CNBC interview with Maria Bartiromo on Monday, Rogers said: “If the world economy gets better I’m going to make money in commodities. If the world’s economy doesn’t get better I’m going to make money in commodities, because Mr. Bernanke is already talking about printing money”.
“The best opportunities right now are in commodities because whatever happens you are going to make money in commodities,” he said.
What’s the ‘big thing’ in commodities?
“Look at the ones that are still cheap,” said Rogers. Rice will do well among soft commodities, he predicted.
“Get yourself a tractor,” he said, predicting that agricultural commodities have another good 5-15 years ahead because of under-investment in the sector. He also likes sugar.
Regarding precious metals, “look at the ones that are still down,” he said, adding that silver may be a better buy now than gold because it is well off its historical high and on a percentage basis – will probably go up even more.
“Gold is making all-time highs, silver is still 60% below its all-time highs,” he said.
Does this mean gold has peaked?
“Gold is going to go a lot higher over the next decade,” Rogers said.
“It may slow down for a while because it’s run up so dramatically here in the last few weeks. But gold’s going to be much higher,” he said, adding “don’t sell your gold”.
“Adjusted for inflation it should be well over US$2,000 now. When I say something like it’s going to 2,000 in 10 years it’s not a very dramatic statement given the state of the world. I’m sure it’s a given.”
The legendary investor said a bubble is forming in US long-term government bonds. If not there yet, we do not have the end of the bubble yet, he argues.
Speaking in a Teck Ticker interview on Wednesday, Rogers said: “Central banks around the world are going to print money till we run out of trees”. Investors should protect themselves with real assets, he argues. (Hayden’s Note: Apparently, Jim Rogers doesn’t realize that dollar bills are made of cotton, not trees.)
How long can the printers go on?
“Eventually the currency markets are going to get into turmoil…and eventually interest rates will start going up and people are going to realize we have problems and they are not beeing met by printing money,” Rogers said.
The only way to build an economy long term is to save and invest while building infrastructure and productivity, Rogers said recently. Nothing else has ever worked, he said, adding that the idea of economies built on consumerism has been discredited many times.
The future has always belonged to the people who’ve got the assets — the people who’ve built up savings and investing.
Any tips for individual investors?
“Buy yourself some silver chopsticks or some silver cutlery, and buy yourself some rice, stock up with rice and you will be very rich in 5 or 10 years,” Rogers told India’s Economic Times.
Tiny URL for this post: http://tinyurl.com/3som35u