New York, New York (PressExposure) March 16, 2012 -- Danny Esposito, co-editor for financial web site and e-newsletter Penny Stock Detectives, believes that, with money printing by central banks out in full force around the world, it is no wonder investor money has flowed into precious metals. In a recent Penny Stock Detectives article, Esposito points out the most surprising aspect that investors will be shocked to learn. Most investors would assume that gold would be the best performing precious metal in this environment, but, year-to-date, gold bullion has risen 14%, while silver bullion has risen 33%.
Esposito argues that silver will continue to outperform gold, because of a relationship that goes back thousands of years: the gold-to-silver ratio.
"The gold-to-silver ratio simply states the relationship between gold and silver in terms of price," explains Esposito. "The ratio measures how many ounces of silver bullion buy one ounce of gold bullion."
Over the last few thousand years, 15:1 has been the average gold-to-silver ratio. That is, it takes 15 ounces of silver bullion to buy one ounce of gold bullion, Esposito notes.
In 2009, this ratio went to a high of over 80:1. Silver bullion then began to outperform gold bullion, which brought the ratio back down. Towards the end of 2011, the gold-to-silver ratio stood at roughly 57:1, which is still very high by historical standards, notes Esposito.
According to Esposito's article, since the big move in 2012 by both precious metals, silver bullion has outperformed, which has sent the ratio down to the current 48:1. However, compared to the historical norm of 15:1, silver bullion has a better opportunity to outperform, as the gold-to-silver ratio currently stands at 48:1.
"The historical standard of the 15:1 number did not occur by accident," comments Esposito. "Even today, it is estimated that roughly nine to 17 ounces of silver bullion are mined out of ground for every one ounce of gold bullion mined out of the ground."
That means that the 15:1 gold-to-silver ratio is based on how much physical silver bullion is found underneath the earth's crust as compared to gold bullion. This is why the ratio continues to be a reasonable measure even today, says Esposito.
Esposito concludes: "Now, if the gold-to-silver ratio currently stands at 48:1 and silver bullion taken out of the ground stands at roughly 9-17:1 when compared to gold bullion, then, according to this ratio, the price of silver bullion is undervalued compared to the price of gold bullion."
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