Historical Gold/Silver Ratios -- Silver High Upside - Useful Article Links

Stuart · January 10, 2004 2:09AM

I have been looking at some historic Gold/Silver ratios. Here are some interesting facts and a prediction...

In 1980 when Gold was at its peak of $850 and Silver as $50 the Gold/Silver ratio was a relatively low 17:1

Recently when Gold was at $280, Silver was about $4 with a very high ratio of 70:1

Historically the Gold/Silver Ratio has been about 20:1

Today with Gold at $425 and Silver at $6.50 the ratio is still a very high 65:1 -- Silver is Undervalued

This implies that Silver has got alot more leverage to the upside (in multiples of today's price) than does gold. Gold only has to double from today's price to hit the all-time high -- but silver would have to go up over 7 times to get to its historic high, and to revert closer to the historic 20:1 ratio.

My interpretation of these statistics is that Silver is very undervalued relative to gold in today's market, and I predict that it will not only increase in value in the current bull market for precious metals, but that it will significantly outperform gold on a percentage basis. Just my own opinion... Any Others ??

Neptune · January 10, 2004 2:15AM

very interesting research and theory. I have been wondering what is going to happen to silver - as I am sure other's have also. That would mean buy and not sell?

Stuart · January 10, 2004 2:17AM

Neptune: Yes, I recommend buying on price dips and accumulating (investing - not trading) as I believe that the medium to long-term trend is up.

Neptune · January 10, 2004 2:21AM

If I wanted to invest a few thousand into silver - what would be the best way? Is there a mutual fund or stock - or would you reccomend to buy the actual silver pieces - and if so, which ones/kind, etc. Bullion? What kind. Dated coins? what kind? Thanks - I tend to agree with you that silver is going up, and would like to find the safest way to invest.

abuell · January 10, 2004 2:24AM

The odds of the metals' markets repeating the 1979-1980 debacle are directly proportional to the odds that the Hunt brothers will again attempt to corner the silver market - nil.

BigE · January 10, 2004 2:31AM

I wonder what the price of silver would have been in 1980 without the influence of the Hunt Brothers.------------------------BigE

Stuart · January 10, 2004 2:32AM

Abuell: I understand your comment and respectfully disagree, because I think that we are in for an economic inflationary period as the U.S. inflates our currency to:

1) Make our goods cheaper to those overseas to try and improve our trade balance
2) Reduce the real value of the huge National Debt by inflating it to a lower real value

I personally feel that the U.S. is in for some hard economic times coming up. Here's an interesting insightful article from the "Financial Sense" web site for reference:

"Believe It" by Jim Puplava & Eric King

Financial Sense

roadrunner · January 10, 2004 2:32AM

Buy bags of 90% silver coin for they at least have some numismatic value and/or 100 ounce Englehard silver bars. Your local coin dealer usually has either one or can get them. Always get PHYSICAL possession of bullion.

Stuart, I agree with you 100%. Silver seems way way undervalued.
It has been off the radar screen longer than gold. Everyone forgot about it....hence it's the contrarian play. Besides the ratio you mention, there is LESS physcal silver on the market than gold. Figure that out. If all the comex contracts had to perform today, there wouldn't be enough silver on the market to fill them. Silver can be extremely volative just like a penny stock compared to a blue chip. And you cannot just open up silver mines and start production again, that takes years. Silver usually comes from the by-product of other mining operations. Silver is cheap enough where the average person can buy ounces of it and not feel the pinch. Not so with gold. I recall reading a great article on www.financialsense.com or one of the other major metal sites about 50 reasons why silver is tremendously undervalued. If someone could recall where that was and post it, provides some great insights. Things that have been artificially supressed for decades don't stay down forever.

roadrunner

Stuart · January 10, 2004 2:37AM

Neptune: If you want to invest a few thousand $ in silver, you could buy either 90% U.S. Silver Coins, or either 1oz, 5oz or 10oz silver bullion coins or bars.

$6500 in silver at today's prices is about 1000 troy ounces, which is about 69 pounds of silver that would fit into either a safe or a safe deposit bank box.

You can also purchase silver via one of the Canadian mutual funds (forgot the name) that actually hold the metal in storage -- but that requires faith in that specific company... I'd personally rather have the security of holding the metal.

Stuart · January 10, 2004 2:38AM

Roadrunner: I agree with you 100% !! If I can find that article that you referred to I'll post the link.

Stuart · January 10, 2004 2:50AM

Roadrunner: Is the following the Silver article that you had referred to from the Financial Sense Web site??

78 Approaching Forces For Higher Silver Prices

roadrunner · January 10, 2004 2:53AM

Yes Stuart that's the one. Wow, 78 reasons. Can anyone post a link to a contrarian site stating 78 reasons to buy DOW/S&P index funds? I would honestly like to read one but cannot find one.

roadrunner

291fifth · January 10, 2004 2:56AM

The "ratio" bit belongs in the 19th century.

Stuart · January 10, 2004 3:24AM

291Fifth: Would you please explain your comment about the Gold/Silver ratio to enlighten the rest of us.

Neptune · January 10, 2004 3:47AM

Stuart: Yes, I recommend buying on price dips . . .

What I have been trying to determine is - as I am sure others have --- are we past dipping? Is it all up from here.

IMHO, I do feel that silver will go up, but - will we have another/more dips first before it continues to rise?

oreville · January 10, 2004 4:06AM

Click on the 1792-1999 annual average silver prices

Click on the 1833-1999 annual average gold prices

Stuart · January 10, 2004 4:11AM

Neptune: The price of Commodities, like stocks, usually go up in a sign wave type of curve short term -- not in a straight line. What one has to determine (for your own investing risk) is whether the slope of the sign curve is ultimately positive (bullish), negative (bearish) or sideways (flat) in the medium to long-term timeframe.

My personal belief is that the medium to long-term slope is positive, and bullish -- for the resons that I have outlined in the first post of this thread.

I happen to believe in studying historic trends to learn from them, and to perhaps gain more insight into what could occur in the future.

Stuart · January 10, 2004 4:12AM

Oreville: I could not see your post -- all I got was the "red x" with no picture...

Never mind -- I got it to show up this time...

Stuart · January 10, 2004 4:16AM

Oreville: I'd like to see an inflation adjusted version of those Kitco long-term Gold & Silver price charts.

I remember an article by Peter Brimelow that appeared in either Fortune or Forbes a few years ago that had a great inflation-adjusted gold price chart which then indicated that $260 gold was the lowest histoic infation-adjusted price for gold in hundreds of years (since 1492).

I'd love to get a link to that kind of chart for gold & silver!!!

Here's my favorite gold chart:

Adam Hamilton's Gold & Gold Stocks Chart

tradedollarnut · January 10, 2004 4:28AM

IMO, precious metals are a very good hedge against the continuing fall of the dollar...BUT.... I also believe that the historical price ratios of silver and gold are completely irrelevant. I've heard that argument for two decades now as silver continued to fall and fall and fall against gold. I see no forces whatsoever that will drive the ratio back down.

The typewriter has historically been an important office tool......should we buy Olivetti stock?

roadrunner · January 10, 2004 4:36AM

You mean my Olivetti stock isn't worth anything??? Sheesh. Next thing you'll be telling me is my Enron stock is worthless.

TDN, Stuart posted 78 reasons why silver is undervalue wrt gold and everthing else. You don't agree with even one reason there for silver to gain on gold in the future??

roadrunner

tradedollarnut · January 10, 2004 4:40AM

Sorry, Roadrunner - didn't even read them. In 1983 I believed that way and bought 1,000 ounces of silver thinking that the ratio would turn around. Still hasn't, has it?

I'm not poohpoohing precious metals.....just don't think silver is any better than gold and in fact might be weaker.

Wondo · January 10, 2004 4:40AM

<< The odds of the metals' markets repeating the 1979-1980 debacle are directly proportional to the odds that the Hunt brothers will again attempt to corner the silver market - nil. >>

That's probably right since they are backing Benchmark.

Stuart · January 10, 2004 4:52AM

Wondo: What is "Benchmark"?

Stuart · January 10, 2004 4:55AM

Hey: Look what I found after a bit of searching on the web:

Gold Price in Constant 2002 US Dollars (1786-2002)

600 Years of Silver Prices - Constant 1998 Dollars

291fifth · January 10, 2004 5:08AM

<< 291Fifth: Would you please explain your comment about the Gold/Silver ratio to enlighten the rest of us. >>

Today gold and silver are commodities. They will be priced as market demand dictates. Williams Jenning Bryan is not around to get people interested in what always were artificial "ratios" of value between gold and silver.

roadrunner · January 10, 2004 5:08AM

TDN, I too purchased a quantity of silver in 1982-1983 thinking that it would turn around. I paid $13/oz.. Was happy to dump it a few years later for around $6-8/oz when it rebounded a tad. It must be something about dumb sailors! I made a mistake for sure. I knew nothing about markets, momentum, charts, interest rates, etc. Just because I made a mistake 20 years ago doesn't mean that silver is a bad investment for me for the rest of eternity. I also purchased and owned stocks in the late 1960's - 1970's and into the mid-80's. They stunk up the joint. That basically blighted my vision for the entire 1990's when I also felt that stocks sucked. That was 2 mistakes I made. So I'm a little more open minded and knowledgeable today where I have to consider all the markets and all the options. Silver gets a 2nd try....albeit in a small way. I've even warmed up to the idea of generic, indexed bull stock funds but just not at this time. And for what it is worth, I thought coins were dead by 1996-1997 and just about threw in the towel for good. Guess it shows that most things do come back (except fads like tulips and beannie babies)....just when you don't expect them too.

roadrunner

291fifth · January 10, 2004 5:10AM

Oops! William Jennings Bryan. I don't want to be crucified on a cross of gold for misspelling his name.

oreville · January 10, 2004 5:14AM

Note that for most of the the 20th century the gold/silver ratio was closer to 35/1 or at least the official price of $35 gold to $1.29 silver. Also note that the Great Depression caused silver values to drop by nearly 50% by 1932 although it did rebound by 1933-34 only to sink again by 1939 and only WWII pulled silver out of its funk.

I subscribe to the 35/1 gold/silver average.

The 19th century saw much stronger silver prices relative to gold. This was partially due to huge amounts of gold discoveries in the 19th century with a weak fragmented lobby group whereas the silver interests were in strong hands and also a strong lobby to prop the silver price up after silver was mined in huge quantities.

Gold/silver ratio in the 19th century:

1801 to 1832 no data
1833 to 1836 15.97
1837====== 15.30
1838 to 1861 15.98
1862====== 12.08
1863====== 10.58
1864====== 7.03
1865====== 10.93
1866====== 11.69
1867====== 11.86
1868====== 11.82
1869====== 13.16
1870====== 14.44
1871====== 14.62
1872====== 14.25
1873====== 14.54
1874====== 14.64
1875====== 14.82
1876====== 15.71
1877====== 17.05
1878====== 18.78
1879====== 18.05
1880 to 1899 high 35.10 / low 18.30

Stuart · January 10, 2004 5:16AM

Here's a very compelling argument towards purchasing precious metals as insurance against a financial crisis. It make interesting reading whether or not you agree with their recommendation:

To Buy or Not to Buy Precious Metals

Stuart · January 10, 2004 5:20AM

Oreville: $35 Gold/$1.29 Silver would be a 27:1 ratio

roadrunner · January 10, 2004 5:27AM

As far as cornering the silver market goes, if Warren Buffet still holds the 120 million ounces of silver he bought a few years ago, he holds more than what is currently promised by deliverable comex contracts today. Actually there isn't enough silver on the market to meet all the short contract requirements should they be called in. Percentage-wise, compared to the Hunts foray 23 years ago, Buffet has succeeded in doing much of the same thing. That is, cornering the silver market. Maybe one of us should tell him of his folly before it is too late for him.

roadrunner

oreville · January 10, 2004 5:35AM

Stuart: I did not make myself clear. Even though the US officially pegged the price of silver at $1.29 while gold was $36, the silver price averaged closer to $1 an ounce in post WWII before deregulation. Hence, the 35/1 ratio, I prefer.

During the depths of the depression in 1932 gold was $20.69 silver 25.4 cents. or a ratio of 81.5
in 1939 gold was $34.42 and silver was 35c an ounce================== or a ratio of 98.3

Gold is better as a long term play whereas silver is best for the speculative run, but you can't have one without the other.

Ever try to buy a loaf of bread with a gold coin?

Stuart · January 10, 2004 5:38AM

Oreville: Thanks for the clarification

bulloncoins · January 10, 2004 7:13AM

<< As far as cornering the silver market goes, if Warren Buffet still holds the 120 million ounces of silver he bought a few years ago, he holds more than what is currently promised by deliverable comex contracts today. Actually there isn't enough silver on the market to meet all the short contract requirements should they be called in. Percentage-wise, compared to the Hunts foray 23 years ago, Buffet has succeeded in doing much of the same thing. That is, cornering the silver market. Maybe one of us should tell him of his folly before it is too late for him.

roadrunner

>>

Most people believe Buffet has already sold most of his silver holdings. Kudlow & Cramer made reference to this fact last night on their show. Prices are still rising. Investors are realizing silver has been undervalued and manipulated... If the dollar falls below 81 on your Kitco charts watch it go a lot higher, a lot faster.

tradedollarnut · January 10, 2004 7:18AM

Investors are realizing silver has been undervalued and manipulated

Nah. Precious metals are holding relatively steady in everything except dollars. So are precious coins. I'd rather own them than a mega heavy hunk of metal with no history behind it.

Stuart · January 10, 2004 8:31AM

A very sobering article "The Dow report" by Tim W. Woods whose perspective is that we are currently experiencing a Bear Market Rally (sucker's rally) in equities equivalent to the rally that was seen between November 1929 and April 1930, and that the Dow should approach the 3000 range as the 4-year cycle bottoms in either 2006 or 2010!

The Dow Report by Tim W. Wood

Whether or not one shares his negative long term bearish perspective about equities, I feel that its helpful to expose one's self to other perspectives (just in case they may be right)!

cladking · January 10, 2004 8:57AM

The fall of the dollar does not necessarily have to manifest itself as inflation. It is
likely it will because market forces will generally cause this and import prices will
increase giving domestic manufacterers so leeway in pricing. The tremendous rise
in commodity prices reflected by the increase in the CRB from 180 to 260 will auto-
matically translate into inflation however.

Experts generally estimate the world silver supply at about 25 billion ounces. This
may be too high since it isn't much less than total recorded mining and significant
amounts have been lost in the wearing and sweating of coinage and in photographic,
household, and industrial processes. Whatever the amount of silver, it is the most
usefull of all the precious metals and is used in increasingly more applications inclu-
ding some of the newest and most important technology. Its unique atomic structure
would seem to dictate that this will not change soon. A great deal of the supply comes
from copper and gold mining so any increase in the price of these metals will work to-
ward decreasing silver prices.

Of perhaps critical importance to its future price potential, however is the simple fact
that it is a tiny market compared to the total markets, and that it is percieved to be a
critical metal to the future. While the Hunt's may not buy huge quantities again, it
would require relatively few individuals (like Gates and Buffet) to shake this market to
its (copper) core. Don't rule out the possibility that this demand will develope.

A great deal of storage room is required but if you have the room a great way to buy
silver is as 40% silver halfs. There is good downside protection since they're always
worth $.50 and you retain the upside potential. BU examples if you can find them will
also yield some numismatic potential since large numbers were melted in '79. For cost
alone the 35% silver nickels have a steep discount to spot. Otherwise look at 100 oz
bars or the lowest premium source you can find or concentrate on numismatic potential
with world silver or modern bullion.

Higashiyama · January 10, 2004 9:11AM

As several others have pointed out, the historical ratio is of little importance. About 150 years ago, as the UK and later the US moved towards a gold standard, the monetary role of silver began to wane. The lower relative value is tied to the diminished monetary role for silver. The value of silver may well rise due to its commodity value, but it is still a mistake to review historical ratios and conclude that silver is undervalued.

(Keeping in mind that silver sold for around $ 1.00 per ounce more than a hundred years ago, its track record as a store of value if extremely poor! I don't see any fundamentals to suggest that the next 100 years will be any better)

Stuart · January 10, 2004 9:25AM

Oreville: Based on your preferred Gold/Silver ratio of 35:1:

1) Do you feel that silver is undervalued relative to today's gold price ($425 Gold / 35 = $12 Silver)?
2) Do you feel that gold is undervalued based on poor U.S. & World economics; which would imply that Silver is very undervalued ($600 Gold / 35 = $17 Silver?
3) Or, do you feel that Gold is currently Overvalued at $425 an ounce?; which may imply lower Silver prices...

Just curious...

Deadhorse · January 10, 2004 9:28AM

<< Neptune: If you want to invest a few thousand $ in silver, you could buy either 90% U.S. Silver Coins, or either 1oz, 5oz or 10oz silver bullion coins or bars.

$6500 in silver at today's prices is about 1000 troy ounces, which is about 69 pounds of silver that would fit into either a safe or a safe deposit bank box.

You can also purchase silver via one of the Canadian mutual funds (forgot the name) that actually hold the metal in storage -- but that requires faith in that specific company... I'd personally rather have the security of holding the metal. >>

Stuart, it's too late to find 1000 ounces at $6500, in fact it's been too late for that for the average buyers for a few weeks now. I can buy right at very near dealer wholesale on 100 oz. bars and today the best I can do is $675.

Other than that, your points are well taken and a conclusion I came to quite some time ago. It's also something I have been acting on as well.

Agree as well on taking physical possesion, the main structure behind this whole house of cards so far has been the selling of the same physical bar of silver to multiple buyers on paper.

Stuart · January 10, 2004 9:32AM

DeadHorse: Of course you are correct. I understand that the silver will cost above the current spot price, but was trying to round off to an even number to simplify the calculations for Neptune who was unfamiliar with ways to purchase silver.

AJ2525 · January 10, 2004 2:43PM

Just a few more thoughts on items that MAYBE will drive the price of silver up:

1. I'm told small amounts of silver are used in flat screen monitors, flat screen TV etc. Those are sort of popular now days

2. The US EPA is sort of up in arms about the fact that the arsenic in wood preservatives currently used do show up in children who play on treated wood playgrounds. The alternative uses silver.

3. Something about silver kills/disables germs. Seems to me to make sense since there is lots of silver utensils running around.

In my mind I envision the Japanese replacing door knobs with silver ones since they as a societyare so germ-phobic. Lots of doorknobs around.

This all goes back to an earlier comment, silver is a heavily used precious metal.

I wonder how long the run up will last. Mexico has LOTS of silver but it costs more than current prices to mine. Where is the break even price for a lot of those mines?

oreville · January 10, 2004 3:36PM

<< Oreville: Based on your preferred Gold/Silver ratio of 35:1:
1) Do you feel that silver is undervalued relative to today's gold price ($425 Gold / 35 = $12 Silver)?
2) Do you feel that gold is undervalued based on poor U.S. & World economics; which would imply that Silver is very undervalued ($600 Gold / 35 = $17 Silver?
3) Or, do you feel that Gold is currently Overvalued at $425 an ounce?; which may imply lower Silver prices...

Just curious...
-------------------------
Stuart Goldstein
Houston, Texas >>

Answers:

#1 Yes.
#2 I don't know.
#3 I don't know.

I do know this, it is my opinion, barring any significant financial hiccups of our monetary system, that silver is undervalued relative to gold. At $425/$6.46 the ratio is 65. 8.
Silver can much more easily spike 75% from these levels than gold and not even raise any eyebrows. Silver fares better in a bullish commodity market than gold and fares worse than gold in a depressed commodity market. In US $ at the moment.

perro · January 10, 2004 4:06PM

This is for neptune--I have both gold & Silver stocks and they have been cranking. Pan American Silver (stock symbol--PAAS) and it is up 30% over the last few months. I believe it is up around 90% for the year, but I'll have to check. It is a way to profit on silver without physically owning it. All investments have their risks, but I had an awesome year, averaging nearly 20% increase for the year.

Deadhorse · January 10, 2004 6:02PM

Perro,

Dump the stocks and take possesion of the physical metal. I could list many reasons for doing this but it's late and I'm sure someone will come along tomorrow and post such a list.

When silver and gold both take off like skyrockets, your stock will not react the same and may in fact fall. 80's history has shown this to be the case.

Take your profits now and put them into something you control.

Neptune · January 10, 2004 6:17PM

well, just got back from auction and got some nice old pieces of silver. They emit presence and I think they are kewl as heck even tho they aren't slabbed. Also got a 3 cent piece, a nice jade necklace and some other antiques that will rock on the bay.

roadrunner · January 10, 2004 11:15PM

Deadhorse, I agree with taking physical possession too. And that includes the stock certificates if you have stocks. The same game of trading your stock certificates multiple times is all part of the same game the commercial dealers have been playing for years.

I don't know about totally eliminating the idea of silver or gold stocks. The leverage they present is very high, esp. on the smaller companies. If you own say 4 junior companies and gold explodes, maybe one goes up 200x, another 20x, and two others go bust.
That's still a 50x gain. The best that gold could muster might be a 2 or 3x gain. Silver maybe 10x just to toss out numbers. The leverage isn't there. Those are still tidy gains, but 50x seems better to me. I currently don't own any metals stocks but am moving in that direction within the next 60 days.

roadrunner

oreville · January 10, 2004 11:40PM

I still like the concept of owning 90% silver but only in mercs and walkers, at the slightly higher premiums. The extra numismatic value of the mercs and walkers makes this a true triple play.

Face value
Numismatic value
Silver value

The premiums for walkers and to a lesser extent mercs. are growing.

Stuart · January 11, 2004 2:41AM

Oreville: Interesting that you should recocmmend purchasing circulated silver in the form of Mercs and Walkers...

Within the past year, one of my local coin dealers had a couple of large plastic tubs filled with walkers and mercs that caught my eye. They were the kind of coins that I picked out of circulation when I started coin collecting as a kid in the early 1960's, so they intrigued me.

I asked him how much for all of the coins.

If I remember correctly I ended up purchasing them for just under 4x face value when silver spot was about $4.50.

There were hundreds of coins. My wife and I had a great time looking through them and even found a 1921-D merc, and many pre 1940 mercs and walkers, including several slider walkers that are really pretty coins.

At the time this purchase seemed like the right thing to do. In hindsight, with Silver now at $6.25 spot this was clearly a great opportunity. The purchase was worth it just for the excitement and pleasure of the treasure hunt that we had going through them and cherry-picking the premium coins (esp. the 1921-D).

By the way, what are today's premiums for avg circulated Merc and Walkers (X Face Value) ??

oreville · January 11, 2004 2:54AM

On ebay $50 of mercs sold for $218 today plus S&H of about $10 or about $228 which equals 4.56. Walkers should be higher than that closer to 5.0 x face including S&H. In person buying is definitely better as you avoid the S&H charges.

Historical Gold/Silver Ratios -- Silver High Upside - Useful Article Links

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