According To The Gold Silver Ratio, Silver is Undervalued
As gold grabs the headlines as the main commodity used to hedge against bad or volatile economic times, silver has quietly made people tons of profits under the table, and right now is another excellent time for investors to consider the dark horse. Historically, gold and silver have maintained a certain price ratio with each other, and this ratio can very easily be used to determine the true value of the other, or if one or the other commodity is over or under valued.
Originally a gold silver ratio was created as a reference of value to assess how many ounces of silver it would take to purchase one ounce of gold. The original ratio was set at 16, which means it would take 16 ounces of silver to buy one ounce of gold. It is important to realize that the current trading ratio is not the true ratio, only a representation of current trading prices. The original true ratio stemmed from the actual physical supply of gold and silver from the earth.
During the most recent recession, the gold silver ratio hit 84.4, its highest level in four years. Currently the ratio is around 50, this signifies an extremely overvalued gold to silver ratio, although working its way to the true ratio. This in itself represents a definite time for investors to buy silver bullion. Sure enough, investors who trusted this ratio profited from the eventual return of the gold silver ratio to more normal levels as the recession waned in 2009 and 2010. This has been a pattern historically, especially over the last decade with the main events causing market volatility being the dot com and real estate bubbles both bursting.
Smart investors will find them in a win win situation, by taking advantage of the knowledge they have about the ratio, even when the two commodities are both on the rise. When asking "should I buy silver?" or even, "should I buy silver or gold?" The short answer is to watch the silver gold ratio, and when it stretches far from its historical average, especially in times of market volatility, an investor may be better off buying extremely undervalued silver.
The ratio tends to correct itself quite violently, making getting in early essential. However, if history is any indication, any investor who does his or her homework and correctly places their assets to take advantage of the current economic environment will probably be invested in silver bullion. Especially with gold being unable to sustain its current growth rate, and receiving those gains from many countries such as China announcing very large, but one time, purchases of gold bullion, the time is ripe for a silver comeback.
Article Source: FxTradingStock.com
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Learn more about the gold silver ratio and more. Stop Aware Prepare and Prosper where you can find out all about wealth protection and growth advice and what it can do for you.
by: Robert B Kress
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Word Count: 451
Date: Fri, 11 Feb 2011
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