It’s a fact. Gold investors believe in gold under any economic condition, but they aren’t so sure about silver. Gold, they insist, is valuable and in fact undervalued. Their argument is basically that gold did well during the last Depression and silver only sold at twenty-five cents an ounce. This truth and their bias is only partially accurate as we investigate which of these two metals truly is the most undervalued.
If you relate silver to gold, the first thing that you note is the value ratio. For thousands of years, the ratio was generally 16:1 or lower. That assumption was the low for silver, not the high. In the year 200, you could buy an ounce of gold with only 10 ounces of silver. In 3500 B.C., three ounces of silver were equal to one ounce of gold.
More recently, silver has been moving in the area around 40:1 to over 70:1 with gold. There are some very strong reasons why this ratio is seriously out of whack, and why it will be increasingly out of whack, until the price of silver rises. The facts weigh heavily in favor of the smaller ratio and that's a higher silver price…..
The Future for Silver
As the uses for silver continue to increase and the shortfall is accentuated, I
believe when the right day comes, the correction in silver price will be even more dramatic than it was in gold after the signing of the Washington agreement. I believe the rising curve in silver will be breathtaking.
When this will happen exactly we do not know. I do believe it could begin in 2003. Stocks of silver are dwindling and it is beginning to show. Probably the largest supply of silver is in India, but they are selling only tiny amounts relative to their total holdings. Millions of peasants hold silver for a last ditch emergency. This was verified in part by the latest GFMS study, which indicated silver movement within India due to natural disasters within the country.
All in all, the future for silver is subject to more influences than probably any other commodity, and certainly to more factors than gold. Whether this happens over the short-term or not, one must not lose sight of three major factors as far as silver is concerned. I like to call it the ABC’s of silver investing.
A. The shortfall is about 100 million ounces per year.
B. Silver is being consumed and not stored like gold.
C. Sooner or later we will run out of silver stockpiles. We're not too far from that day. When that day comes, there could be a panic to buy silver. A ratio of 10:1 is a fairly reasonable expectation.
BEST OF DAVID MORGAN > November 26, 2002
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