Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
The AI Stocks Megatrend Big Picture - 8th Mar 21
The Future of FINRA, Regulatory Defense and Bad Stockbrokers - 8th Mar 21
Almost Everyone Is Online: But Most of the Money Isn’t - 8th Mar 21
It is Time for Stock Market Investor Caution? - 8th Mar 21
Gold Predictive Modeling Suggests A New Rally Targeting $2300+, But When Will it Start? - 8th Mar 21
Gold: Crisis or Opportunity? - 8th Mar 21
US Bitter Cold Snap is a sign of the times - 8th Mar 21
How Scan Computers Builds Your Custom Built PC - Scan.co.uk Review (2) - 8th Mar 21
US Economy, GDP, Unemployment, Inflation Impact on House Prices Trend 2021 - 8th Mar 21
BACK TO SCHOOL - UK Coronavirus Lockdown Ending - Summer Holidays & Booming Economy Ahead - 8th Mar 21
So, Where Is Gold's Corrective Upswing? - 7th Mar 21
US Treasury Yields Rally May Trigger Stock Market Crazy Ivan Event - 7th Mar 21
The Great Reset Is Coming for the Currency - 7th Mar 21
Gold Continues Declines on Bond Yield Jitters - 7th Mar 21
The Case for Inflation - 7th Mar 21
Dow Short-term Stock Market Trend Analysis - 6th Mar 21
Intel Rocket Lake EXPLODE on Launch - 11th Gen CPU's RUN VERY HOT Bad Cinebench R20 Scores - 6th Mar 21
US & UK Head for Post Coronavirus Pandemic Lockdown Inflationary Economic BOOM - 6th Mar 21
FED Balance Sheet Current State - 5th Mar 21
The Global Vaccine Race Against Time and Variants - 5th Mar 21
US Treasury Yields Rally May Trigger A Crazy Ivan Event (Again) In Stock Market - 5th Mar 21
After Gold’s Slide, What Happens to Miners? - 5th Mar 21
Racism Pandemic Why UK Black and Asians NOT Getting Vaccinated - NHS Covid-19 BAME - 5th Mar 21
Get Ready for Inflation Mega-trend to Surge 2021 - 4th Mar 21
Stocks, Gold – Rebound or Dead Cat Bounce? - 4th Mar 21
The Top Technologies That Are Transforming the Casino Industry - 4th Mar 21
How to Get RICH Crypto Mining Bitcoin, Ethereum With NiceHash - 4th Mar 21
Coronavirus Pandemic Vaccines Indicator Current State - 3rd Mar 21
AI Tech Stocks Investing 2021 Buy Ratings, Levels and Valuations Explained - 3rd Mar 21
Stock Market Bull Trend in Jeopardy - 3rd Mar 21
New Global Reserve Currency? - 3rd Mar 21
Gold To Monetary Base Ratio Says No Hyperinflation - 3rd Mar 21
US Fed Grilled about Its Unsound Currency, Digital Currency Schemes - 3rd Mar 21
The Case Against Inflation - 3rd Mar 21
How to Start Crypto Mining Bitcoins, Ethereum with Your Desktop PC, Laptop with NiceHash - 3rd Mar 21
AI Tech Stocks Investing Portfolio Buying Levels and Valuations 2021 Explained - 2nd Mar 21
There’s A “Chip” Shortage: And TSMC Holds All The Cards - 2nd Mar 21
Why now might be a good time to buy gold and gold juniors - 2nd Mar 21
Silver Is Close To Something Big - 2nd Mar 21
Bitcoin: Let's Put 2 Heart-Pounding Price Drops into Perspective - 2nd Mar 21
Gold Stocks Spring Rally 2021 - 2nd Mar 21
US Housing Market Trend Forecast 2021 - 2nd Mar 21
Covid-19 Vaccinations US House Prices Trend Indicator 2021 - 2nd Mar 21
How blockchain technology will change the online casino - 2nd Mar 21
How Much PC RAM Memory is Good in 2021, 16gb, 32gb or 64gb? - 2nd Mar 21
US Housing Market House Prices Momentum Analysis - 26th Feb 21
FOMC Minutes Disappoint Gold Bulls - 26th Feb 21
Kiss of Life for Gold - 26th Feb 21
Congress May Increase The Moral Hazard Building In The Stock Market - 26th Feb 21
The “Oil Of The Future” Is Set To Soar In 2021 - 26th Feb 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Gold Forecast $2,500, Silver Could Easily Reach $180

Commodities / Gold and Silver 2010 Sep 19, 2010 - 12:40 PM GMT

By: Lorimer_Wilson

Commodities

Best Financial Markets Analysis ArticleMore than 95 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 (55) 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!


Precious metal bull markets have 3 distinct demand-driven stages and we are now quickly approaching or perhaps even in the very early part of the last stage which occurs when the general public around the world starts investing in gold and this deluge of capital into gold causes it to escalate dramatically (i.e. go parabolic) in price.

Gold

Gold went up 24% in 2009 and is up 16% YTD and, as such, there are no shortage of prognosticators who see gold going parabolic reminiscent of 1979 when gold rose 289.3% in the course of just over a year (from a $216.55 closing price on Jan. 1, 1979 to a closing price of $843 per ounce barely a year later on Jan. 21, 1980) and 128% higher in a late-1979 parabolic blow-off of just under 11 weeks! A 289% increase in the price of gold from $1275 would put gold at $4,960. (More on what that might mean for the future price of silver is analyzed below.) That being the case what appear on the surface to be rather outlandish projections of what the bull market in gold will top out at don't seem quite so far-fetched. (For a complete list of the economists, academics, market analysts and financial commentators who maintain that gold will go parabolic to $2,500 -$15,000 in the near future please see: http://www.munknee.com/2010/09/5000-gold-bandwagon-now-includes-these-55-analysts-got-gold/

Silver

Silver has proven itself, time and again, to be a safe haven for investors during times of economic uncertainty and, as such, with the current economy in difficulty the silver market has become a flight to quality investment vehicle along with gold. The 49% increase in silver in 2009 (and 23% YTD) attests to that in spades. 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 $21 would represent a future parabolic top price of $175. (For what that might mean for the future price of gold see the analysis below.) Frankly, such prices seem impossible in practical terms but that is what the numbers tell us.

Gold:Silver Ratio

The current gold:silver ratio has been range-bound between 70:1 and 60:1 for quite some time which is way out of whack with the historical relationship between the two precious metals. It begs the question: "Is now the perfect time to buy silver instead of the much more expensive gold metal?"

How both gold and silver perform, in and of themselves, does not tell the complete picture by a long shot, however. More important is the price relationship - the correlation - of one to the other over time which is called the gold:silver ratio. Based on silver's historical correlation r-square with gold of approximately 90 - 95% silver's daily trading action almost always mirrors, and usually amplifies, underlying moves in gold. With significant increases in the price of gold expected over the next few years even greater increases are anticipated in silver's price movement in the months and years to come because silver is currently seriously undervalued relative to gold as the following historical relationships attest.

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 45.69 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 (61.3:1 as of September 17/10). - 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 the Sept. 17, 2010 price of $1276.50 for gold and apply the various gold:silver ratios mentioned above and see what they do for the potential % increase in, and price of, silver.

Gold @ $1276.50 using the current 61.3:1 gold:silver ratio puts silver at $20.82 (Sept. 17/10) Gold @ $1276.50 using the above 45.69:1 gold:silver ratio puts silver at $27.94 (i.e. +34.2%) Gold @ $1276.50 using the above 13.99:1 gold:silver ratio puts silver at $91.24 (i.e. +338.2%) 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 61:1 puts silver at $41 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 $21 would represent a future parabolic top price of $175.

It is interesting to note that the above $175 is almost identical to the $178.50 that would result from a reversion to the mean in the gold:silver ratio with gold at $2,500. 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 61.1 puts silver at $82 Gold @ $5,000 using the gold:silver ratio of 45:1 puts silver at $111 Gold @ $5,000 using the gold:silver ratio of 14:1 puts silver at $357

;@ $10,000 Gold
Gold @ $10,000 using the gold:silver ratio of 61:1 puts silver at $164 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.

Summary

History will look back at the artificially high gold:silver ratio of the past century as an anomaly, caused by the dollar bubble and the world being deceived into believing that fiat currencies are real money, when in fact they are all an illusion. This fiat currency experiment will end badly in a currency crisis and when that happens, as it surely will, gold will go parabolic and silver along with it but even more so as the gold:silver ratio adjusts itself to a more historical correlation. The wealthiest people in the future will be those who put 10% to 15% (or perhaps more - much more!) of their portfolio dollars into physical silver today and were smart enough to research and pick the best silver mining/royalty stocks and warrants to maximize their returns.

Indeed, while gold's meteoric rise still has room to run, silver's run is yet to get started. As such, it certainly appears evident that now is the time to buy all things silver.

Please Note: - This is a one-of-a-kind article which no doubt will get a great deal of attention and be posted on a large number of other financial sites and blogs. This is encouraged but to avoid copyright infringement the author’s name must be included with a hyperlink to the original article.

Lorimer Wilson is Editor of www.FinancialArticleSummariesToday.com (F.A.S.T.) and www.MunKnee.com (Money, Monnee, Munknee!) and an economic analyst and financial writer. He is also a frequent contributor to this site and can be reached at editor@munknee.com."

© 2010 Copyright Lorimer Wilson- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Lorimer Wilson Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules