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Why silver is undervalued at the moment. The gold/silver ratio explained.

Absolutely bullish on gold and silver!
The gold price is over the $ 1000 mark (again) and while I’m writing this post we are experiencing a very large upward spike!
I think that gold will rise further till at least the end of the year, than it should have reached the   $ 1080 /1090 mark.
Than two things can happen: 1. a drop back to the $ 1000 mark again or 2. a price explosion, where gold can easily go to $ 1500 or even $ 2000
Silver is being highly undervalued, today the gold/silver ratio is about 70, before 2008 the ratio was in the 40-50 range. Historically the ratio is about 16, and that number makes much more sense than the ratio’s we see nowadays.

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There is about 16 times as much silver in the ground as there is gold. Then why did we loose this ratio? This can be explained by silver loosing its monetary status to gold in the 19th century.  During the 1970′s the value of silver was once again proven because the inflation was very high. The price went from a few dollars to $ 50 per ounce. If we correct that price to inflation, silver should cost $ 150 per ounce today! It should be noted that there was an attempt to corner the silver market by the Hunt brothers which caused the price to sky-rocket. The plan failed on Thursday 27 March 1980, this day became known as Silver Thursday. Also the leverage of the silver price to gold had a very negative effect during the 1980′s. In 1992 silver hit a historical low of $ 4,73 per ounce. Not long after that Warren Buffett bought a large quantity of silver. You can find some interesting charts here.

Many investors have considered the industrial aspects of silver as negative. What they forget though, is that silver is being consumed, and gold isn’t. Every year new applications for silver are being discovered. For instance, there is probably silver in the screen you are looking at right now!

The money presses are running wild in both the US and in Europe. Normally money is created by central banks in order to keep track with economic growth. We can’t really say the economy has seen much growth lately. Inflation is inevitable, so the chances of silver prices going berserk again is very plausible. Have a look at a very nice chart I found. The chart shows the silver price over a period of 600 years, corrected by inflation and the gold/silver ratio. (chart from 1998)

600yearsilver CashInfo.org

Click to enlarge

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