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Gold-Silver Ratio: Silver value highest in five years

February 15, 2011

NEW YORK (Commodity Online): As precious metals continue to lead the commodities boom globally, the most frequently asked question these days is where does the gold-silver ratio stand.

Over the years, gold has been the high value beneficiary commodity in comparison to silver. But last week, the gold to silver ratio fell to just above 45:1. According to Wayne Atwell, Managing Director of Casimir Capital, the silver value in comparison to gold is the highest in the last five years.

“This is because people—investors—are regarding silver as a safe haven investment just like gold,” he says.

Atwell said: “Suddenly with the anxiety level that’s surfaced about sovereign debt and municipal deficits, people are turning to alternative ways to hedge themselves and I think people felt silver was cheap based on where it has been historically, so they jumped on the bandwagon.”

Gold-Silver ratio is the most important barometer for commodities traders and futures market dealers. Even though bullion prices have been on a bullish run all these months, the gold-silver ration continues to fall.

Silver remains more than 30% below its nominal price in 1980 and given the very sizable quantities of silver used in industrial applications in the last 30 years and in the 20th century, the ratio is likely to continue to revert to the historical long term average of 15 to 1.

Meaning that 15 ounces of silver should in time be able to buy 1 ounce of gold. This makes sense from a supply perspective as geologically there are 15 parts of silver to every 1 part of gold in the earth’s crust.

Atwell says that the ratio change in silver’s favor is more an indication of investors looking for another second safe investment in precious metals than a lack of interest in gold.

“It doesn’t reflect poorly on the performance of gold, it reflects the fact that silver had not participated as much and now suddenly people are figuring it’s going to play catch-up,” said Atwell.

Gold has been very strong until up about the last month or so as it’s been going through a bit of a correction. Silver was initially left in the dust, but now people are gravitating towards it and it’s been a lot stronger in the past six to 12 months, Atwell pointed out.

“If a metal or a commodity or a stock is moving upwards, has broken out to new highs or is very bullish, then people tend to jump on board,” says Atwell. “At this point silver has momentum and gold doesn’t.”

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