Friday, February 18, 2011
The gold/silver ratio is an indicator with a few thousand years of track record. When ancient Rome was on a strict gold/silver standard and in its peak as an empire, this ratio was fixed at 8. For most of the balance of history up until the founding of the Federal Reserve in 1913, this ratio typically averaged around 15. Many of us believe that we will eventually see a GSR of 15 and maybe even lower. Here's where we are now:
(click on chart to enlarge)
You all can work out your own math in terms of price targets using a GSR of 15. I know we will see at least $3000/oz gold eventually (and I believe a lot higher but most of you would not believe my target range so I'll keep it to myself and close colleagues). But assume $2000/oz gold and and GSR of 20. That yields $100/oz silver. Not a bad ROI, so who cares if you pay $33/oz and it corrects to $30 before heading higher?
Silver has been ramping in price over the past few days. Given the degree of paper short interest vs. actual availability of physical supply to deliver - I'm referencing 1000 oz. bars and not 1 oz. bullion coins or lesser "junk" silver - it could get pretty "messy" to the upside in the silver market. Yesterday I was chatting with with a long-time expert in the precious metals market - and someone who I believe is as knowledgeable about this market as anyone actively participating now - who thinks that the house of cards that is the U.S. could potentially cave-in this year and the melt-up in the precious metals could be breathtaking. Of course, that will also lead to the implementation of unprecedented Governmental authority in this country and a lot of pain for most you out there.
For all of those who do not believe that the above scenario is possible in this country, I will resurrect a previous "Friday, enjoy the weekend" tune - Buona fine settimana a tutti:
Posted by Dave in Denver at 10:32 AM