If you hold any personal investment in gold and silver, then you are probably aware of the historic gold to silver ratio. The official number varies, but most agree that throughout history, the gold to silver ratio has been somewhere between 15 and 20 to 1. In 1803, for example, both the U.S. and french governments set the ration at 15.5:1. In other words, at that point in history, it would take about 15 1/2 ounces of silver to buy 1 ounce of gold. Today’s silver-to-gold ratio defies history with a ratio of around 40-50 to 1, taking 50 ounces of silver to buy one ounce of gold. As recent as 1990, the ratio of silver to gold was 100:1. This begs the question: what gives? Is silver half the value of what it was before the 20th century, is gold over-inflated, or is something else amiss?

Traditional photography, which used silver in the film, has largely come and gone, with the original craft now being used by only the most die-hard of photographer puritans. In its place, industrial demand for silver has risen in the use of computers, cell phones, and other electronic devices. So I think its safe to say that there hasn’t been any lack in demand in silver from an industrial standpoint. While gold has its uses as plating in electronics, its industrial demand hasn’t really increased. So why, then, has silver value declined significantly relative to gold?

Primarily, I think the answer lies in gold’s perception as a store of value. As the value of the dollar continues to decline, people flock to gold, before silver, to protect their wealth. Silver has more industrial applications than does gold, so it is no surprise that silver is more susceptible to economic decline.

The other answer is paper. From the Dont-Tread-On-Me blog:

“Silver has the largest and most persistent short position in any commodity, ever. The only reason why the 1:45 ratio exists is because the banksters sell paper silver into the paper markets to suppress the price of silver to give strength to the dollar and the quadrillion dollar paper empire they rule. Last May, when they crashed the silver market, they sold something like 8 billion ounces of paper silver into the market in 5 days. There is only about 1 billion ounces of silver mined a year globally. This massive naked short will unwind the day that they cannot deliver on the silver they promised. (Read Blythe Master’s Rides The Silver Rocket.)”

The COMEX inventory continues to decline. Less and less physical silver is reported to be held there. Yet people continue to trade in paper silver that doesn’t exist in the real world.

I predict an eventual return to the historic gold to silver ratio, shortly after this paper fraud becomes widely known. I do think that gold prices will continue to rise. However, even if the gold price stays the same, I think silver will eventually rise to the historic ratio, which at today’s gold price would land silver somewhere around $90-$100 per ounce. If that comes to be true, then silver will increase by more than 100% of its current value, which is around $41.50. If gold reaches what I think it will, which is $2,500 per ounce at the very minimum, then this would land silver’s price, based on the historic ratio, at $125-$150 per ounce.

Any silver pullback these days should be seen as a buying opportunity. If you have faith in the U.S. dollar and think gold value will decline, then please do not buy silver. If you think that the world economy is headed for further decline, and you think that gold prices will continue to rise, then consider increasing your silver position. It can’t hurt.

Thanks and peace,

Nick Foley
The Basic Liberty Letter
http://www.basicliberty.com
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