Sykesville, MD (PressExposure) November 28, 2010 -- Based on history, gold prices should be approximately 20 times silver prices ... Can you believe gold is currently 51 times as expensive as silver?!?
Gold has taken off in price rising from just over $200 per ounce in 2001 to over $1,350 per ounce in November 2010, but even though silver prices have grown more than 100% this year, it is still only about $24 per ounce. Based on the 20:1 historical ratio, silver prices should be $67 per ounce right now.
But what if this discrepancy is not that "silver prices are lagging behind gold prices", but rather, "gold is simply way over-priced"?
Based on the growth of the Consumer Price Index (CPI), the fair market price of gold should be around $600 per ounce. But gold prices are currently much higher than that (and still rising), because of low interest rates, high economic uncertainty worldwide, and expected rising inflation.
If all the "bad" economic factors went away, would gold prices fall revealing that silver is in fact fairly valued now?
The answer is "yes" and "no". Yes, gold prices would (and likely will) fall; and "No", silver is not fairly valued at today's prices.
The reason is the historical ratio is just one symptom of a historically-controlled silver market; the prices have been kept low by Governments around the world releasing their inventories to supply industrial applications and growth. Silver has thousands of commercial uses that actually consume (i.e., "use up") silver, and since inventories are now 95% depleted, silver has a limited supply. In fact, the U.S. Geological Survey says there is an extremely limited amount left in the ground as well ... making the supply "strictly limited".
Contrarily, gold only has a handful of really practical uses, and none of the applications for gold actually "use it up"; all the gold ever mined and used is still around. And though goldmines are choosing not to extract gold from the mines as fast as they could (which artificially limits supply ... further driving gold prices upward), the gold supply is still growing.
This is absolutely not the case for silver as explained at The Silver Dollar. In fact, it doesn't matter what the historical ratio is between gold and silver prices ...
Eventually, the strictly limited supply is going to drive silver prices well beyond the price of gold regardless of how high gold prices rise. It's simply a matter of basic economics; we have thousands of important applications for silver (i.e., high demand) and a strictly limited supply which means our inventories are gone, and there is precious little left in the ground (according to the U.S. Geological Survey).
Thus, you will see silver prices extend well beyond the price of gold (regardless of how high or low gold prices go) once the industry gets to the point where they can no longer get the amount of silver they need. If Robert Kiyosaki, author or Rich Dad, Poor Dad, is correct, and gold rises to $3,000 per ounce, just imagine what a reasonable stash of silver coins would be worth when "silver is worth its weight in gold"!
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