History Says Silver Is Cheap

“If the price ratio between [gold and silver] were to revert back to it’s historical average, then silver prices would outperform gold by more than 2 to 1. In fact, the physical ratio of silver to gold in the earth’s crust is 16 to 1. During the inflationary 1970’s, the ratio between gold and silver prices was at exactly 16:1…mirroring the proportions in which the two metals occur in nature.”
–The Little Book of Commodity Investing, by John Stephenson (Wiley)
With gold currently trading around $1250 per ounce, and silver just above $19, the current ratio of gold’s price to silver’s price appears skewed. One ounce of gold presently buys 65 ounces of silver, so if balance is restored based on the physical ratio of silver to gold in the earth’s crust (16:1), an ounce of silver should be trading near $80.
While silver has many of the same investment attributes as gold, it enjoys the added advantage of industrial demand. And as a currency alternative, silver is more practical. It’s been used as a currency, most notably by the United Kingdom (pound sterling). The French word for money is argent, or silver. In fact, the United States and Great Britain were both on a silver standard up until the 1800’s.
History does have a way of repeating itself, so perhaps our papered money modern world will rediscover silver. Meanwhile, industrial demand continues to grow for silver. Every day another 200 thousand souls are born into our world. The mature and emerging markets demand for industrial metals should continue to expand, and silver enjoys the added benefit of having investment appeal. While not a Fallen Angel in the formal sense, it’s depressed price relative to the growing fundamental case for silver makes it worth considering. I like the iShares Silver Trust ETF at or below $20. Given the exchange traded liquidity and low overall expenses, we view SLV as an efficient way for investors to own exposure to the price of silver.
http://blogs.forbes.com/greatspeculations/2010/09/14/history-says-silver-is-cheap/