Chinese Investors Encouraged to Buy Silver

With 1 ounce of gold selling for $955 and an ounce of silver selling for only $14.63, gold is currently about 65 times the price of silver. Last year the ratio was only 50 times. This is significantly above the long-term historical ratio of gold being worth 16 times more than silver. Even in nature, silver is about 17 times more abundant than gold, and unlike gold, the quantities above ground are constantly diminishing because of its industries use.

By these standards, silver is undervalued when compared to gold. Check out this Chinese news video advising investors to buy silver.

Going by the historical ratio of 16, silver should trade for nearly $60/ounce. Or conversely gold should sell for a mere $240/ounce. Although I have a gut feeling that one is more likely than the other, if you wanted to trade this without making a directional bet, you could enter a pair trade.

In this case, the pair trade would be to short gold and go long silver, however with all the manipulation that seems to be going on with regards to both of these commodities (see the last post on Fraud in Silver ETFs), there’s no guarantee as to when the ratios will converge to the historical averages. Unlike the gold-platinum ratio which was a great trade for futures traders in December 2008 (The price of platinum dropped below that of gold for a few weeks creating a great paired trade), this may not pan out for a long time.

Better to just buy silver coins or silver bars directly or Perth mint certificates.

Comments

[secmaven:]

Since China is the world's largest silver producer it makes sense for the powers that be in that country to promote domestic demand.

Aug 09 11:22 AM

[nmelendez:]

Silver is still cheap and once the price of gold reaches critical you will see small investors buying silver and it's price going up. Short term, i see a correction coming in in PM's.

Aug 09 06:02 PM

[Slvrizgold:]

Forget silver certificates. BUY BULLION and hold it in your hand. I think Jason Hommel has pretty well exposed that the Perth Mint does not have the silver they say they do in his research from around a year ago.

Trade paper for metal. Not paper for paper.

Aug 09 11:29 PM

[Bron Suchecki:]

Jason Hommel did not expose anything. Perth Mint is 100% backed. My blog has numerous rebuttals on this, for those interested in the other side.

Aug 09 11:46 PM

[petersl:]

The silver/gold ratio is clearly out of sync at present. Silver bullion is a smart play right now. Coins have a significant premium which argues for metal bars IMHO.

Aug 10 09:20 AM

[huangjin:]

What's the markup on silver in China? Currently, gold sells for just over 200 rmb per gram. In November, that was the price in Chinese shops, when gold was selling for almost 25% less.

Aug 10 10:20 AM

[Mark123:]

for a national showing, those were some junky looking silver bars.... They looked like they have been banging around in the back of an old Chevy pickup truck.......
Those things should have been polished to look like liquid mercury!!!! Where's the salesmanship there???

Aug 10 12:24 PM

[The Recusant:]

Years ago I was at a trade show where the Chinese had a film color separator (a big machine). It looked like something that came out of a high school metal class and I asked myself, "Will China ever make anything that looks professionally done?" Within ten years they were stealing sales from America and the rest of the world. Give 'em a year or two.


Mark123 wrote: for a national showing, those were some junky looking silver bars....They looked like they have been banging around in the back of an old Chevy pickup truck....... Those things should have been polished to look like liquid mercury!!!! Where's the salesmanship there???

Aug 10 02:59 PM

[denaliguide:]

Historically China was in fact on a Silver Standard, and in fact certain Western Powers forced China off that standard, if I remember my facts right.

So whether is Silver Dragon, or SilverCorp or whomever, IMO, domestic silver producers will reap the benefits.


denaliguidesummit.blog.../

Aug 11 01:00 PM