Gold and silver are precious metals commonly seen as safe heaven in times of currency risk and economic uncertainty. It is hard to take a stand on investing in which commodity has more advantages, but investments are determined primarily by timing.
In this article, we will discuss the current gold/silver ratio, as well as other important factors for commodity investments at present.
Gold/silver ratio is very important factor for traders and often suggests the direction of precious metals prices. In addition, a number of factors such as affordability, inflation/deflation, supply and demand, global trade can help short to medium-term projections. The moves of China, India, Europe, Fed, Japan, US Congress, Central Banks and Big traders also weight on precious metals prices. The current market activities are also largely influenced by politicians. For example, at present the US Federal Reserve gives no indications that it will slow down on QE or any other program in the near future. The consequences may go out of proportions if it doesn’t keep rates down. Take the Euro Zone for example. The Federal Reserve is basically following its strategy to protect its interest. It doesn’t matter if precious metals are seen as money. Their prices can vary in a day like stocks and bonds do.
The important here is, whether gold or silver provides the better return. Though it is certain that both will do that in the long term. Yet, if you can accurately calculate the ratio, you can find out which metal will perform better in both short and medium terms.
Based on the data for the past 12 years, the current gold/silver ratio average is 55.7. From investment point of view, this data recommends to conservative investors a 50/50 assets split between silver and gold. For retiree investors with more gold than silver investments sound as a more secure choice. This so, because silver prices are notoriously volatile and can keep investors uneasy. In 4-5 days one can loose a fortune, if he doesn’t monitor markets closely.
As a matter of fact, on percentage basis silver prices rise faster today than gold ones. Last Wednesday, 2nd of January, gold rose just about 1%, while silver gained 3%. The next time when silver prices really rebound, it is expected to hit the all-time high level and even much higher. Some analysts dare to discuss silver at around $90 per ounce.
On the other hand, gold needs only a 15% rise to reach the all-time high of above $900 from September, 2011. Silver would rise 67% to reach its high of $49.50 from April 2011.
Considering this data, a division of assets into 70% in silver and 30% in gold looks promising for traders. Though, this is on a dollar cost average basis as prices could still decline. This is very important for more conservative investors. The same move won’t be a good advice if silver kept its trend from 2011. But with the current dollar average it is reasonable.
Basically, investors have to wait for further price declines in order to buy more metal on lower prices. And they have to be sure that precious metal possession is reasonable move at this time. Many think that physical gold and silver assets are the best investments. Others prefer ETFs like GLD, SLV and others to trade metals when metal ratios soar. An increasing number of investors are looking more and more at the stock market charts.
These analyses are based on an expectation that in the course of 2013 the greenback will gain strength on the back of the endless Euro crisis. Dollar and euro answer for 71.2% of the US Dollar Index. Therefore, it is widely believed that the US will provide sanctuary to those who own such currencies.
From January 2nd the dollar inched higher from 79.283 to 80.646 in a day. At the same time gold and silver fell respectively by 1.58% and 3.65%. That way they lost their fiscal cliff supported gains and even more. Many gold traders blame American politicians for the falling dollar and debt cuts failure. This suggests for upward trend for gold prices. They actually did, though since September they have been varying in averages. After last Thursday’s decline, prices could fall again as the dollar gains strength. Taking the dollar cost average into a consideration is the best advice in this case for all gold and silver investors.
Eventually, gold and silver will naturally benefit from weakness in currencies from those countries whose currencies are declining at an increasing rate. There are only so many ounces of gold and silver above ground and being produced annually.
Very important argument in support of buying silver in state of gold, at present is the affordability of the white metal. While gold became very expensive for jewelers and retail buyers, silver is becoming trendier among the female population worldwide.
You can combine other market research tools with gold/silver ratio in order to improve the analysis. That way you can properly see what type of investment and respectively returns would work best for you. Is it possible that the ratio could go back again to 60, 70 or even 90. Nothing is impossible, though 60-70 range based on historical ratios performance is not very likely. More conservative investors have to wait for this ratio or just put their money into the yellow metal. However, for traders silver shines brighter now.
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