Discover Why The Gold Silver Ratio Is An Important Indicator Of Soaring Silver Prices

April 2, 2011 - PRLog -- The last time the gold silver ratio stood below 40:1 was in February 1998, just right after silver had staged a 33% rally in five weeks, while gold had gained just 4% over the exact same period (which commenced at the beginning of the year). The contraction in the ratio over the period was from 48.4:1 to 38.1:1.

This time, some thirteen years on, the gold silver price ratio is buying and selling at between 39:1 and 40:1 and a similar contraction has taken exactly the exact same length of time. This time nevertheless, gold and silver are trading at over $1,430 and $37.85, whilst back in 1998 they had been at $300 and just over $7. http://silver-dollar-values.com has all of the details for an intelligent silver investing choice.

Now the silver price has bounded up as a result of a sustained belief (whether right or wrong) in gold's upward trend on the back of current geopolitical and inflationary worries. Both gold and silver are already in sustained bull markets, whilst in 1998 the transformation in ratio marked the beginning of a shift in sentiment, albeit one that was battered by subsequent external events.

Silver investment can frequently exceed that of gold for more than just one single reason: a) the history of silver's higher volatility over gold, prompting professional activity with a view to gearing up on returns; b) silver's lower unit cost, which draws in some smaller-scale investors who want exposure to precious metals due to inflationary fears in particular and who do not necessarily have sufficient wealth to invest in gold to any meaningful level; c) within the United States in particular, silver has a long-standing investment decision tradition. This is because of the period when the US dollar was on the gold standard and private people had been prevented from holding gold, so they used silver as a substitute. http://silver-dollar-values.com has all of the details for an intelligent silver investing choice.

At the beginning of 1998, gold was beginning to stage a recovery after a lengthy period of uncertainty, portrayed by intermittent announcements of large-scale central bank sales that unsettled market sentiment; this was augmented by increasingly heavy mine hedging as well as these two fundamental elements, combined with anti-inflationary fiscal policy, had kept gold prices under certain pressure.

What was different about the beginning of 1998 was the starting formation of the European Monetary Union, which gave the markets a degree of comfort and reduced the expectation of recognized sector sales. (This, of course, was latterly to be stymied by the announcement in May 1999 by HM Treasury in the UK of the proposed disposal of up to 40% of UK gold holdings; emotion then changed considerably as a result of the institution of the very first Central Bank Gold Agreement in September 1999). Investors began to return to gold and silver was a normal beneficiary of the changes in sentiment.

Interestingly enough, silver fabrication demand in 1988 was just over 26,000 tonnes; in 2010 it was very close to the exact same level, suggesting that the marketplace itself isn't much deeper than it was within the late 1980s. Actually, on the basis of LBMA clearing figures, the December 2010 every day average clearing rate was just below 100 million ounces, much less than one-third of the clearing figures for end-1997. http://silver-dollar-values.com has lots of silver and gold tips.

The structure of the demand side has changed with industrial demand fluctuating, but photography, jewelry, and silverware falling substantially. Coin demand from customers, by contrast, continues to be growing steadily.

Sustained retail demand has helped the rise in the price of silver in recent months, highlighting the continued awareness at the retail level of the value of silver by comparison with gold. This has been especially marked within the Far East, where silver bullion bars have scarce and commanding high premiums, whilst India and the Middle East have also been powerful buyers.

Consequently the ratio has to some extent taken on a life of its own and been traded as an outright entity within the bullion markets. Today at 13-year lows it is not in unknown territory, but is definitely oversold.

While the markets remain bullish about the prospect for gold on the back of sustained inflationary and geopolitical fears, silver is most likely to continue to draw in attention. The outright cost might make silver unattractive for fresh bull positions, but technically driven and momentum trades may yet see costs higher if the political situation is not resolved having a minimum of further trauma. Silver has frequently been the commander between the two precious metals because of its lower unit cost and greater volatility; the ratio can consequently be regarded as a comparable leading indicator. Actually it's probably one of the most significant indicators in terms of precious metals marketplace sentiment and, so, with regards to looking for guidance, the chart ought to be watched carefully for signs of reversal. Actually stabilization could be significant; a bounce may well trigger stops.

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