Gold & Silver Have Shiny Futures

A couple of recent events led me to write this post. First,  I received a request on one of my earlier posts on Gold, to give my take on Silver. Why not? After all, Gold and Silver have been the choicest possessions of men and women over centuries. Be it any civilization, any era, the fascination for these pretty, shiny things has captivated and motivated one and all.

Next, some friends and I had a deep discussion on the future of precious metals, given our current economic condition.  So here’s what I’ve got to say about Gold and Silver:

These two charts (both tracking values & changes from 1975-2008) showcase interesting data-points:

1. Gold and Silver have always trended similarly, historically, the % change and the direction of the change for both these metals has always followed a similar pattern, indicating a tight correlation between them.
2. The number of barrels of Oil that an ounce of Gold or Silver can buy stays relatively flat (1 ounce of Gold = 17 barrels of oil (avg): I barrel of oil = 3 ounces of Silver (avg.)).
3. The Gold-Silver ratio has a weighted long term average which tries to maintain it flat.
4. Given the trading prices of Gold and Silver (Gold = $956 & Silver = 18.55 /ounce). I believe Gold has to hit $1153 sometime in the near future. Silver will rally as well and IMO it will hit $22 around the same time.
5. FWIW, in order to hit the historical avg Gold-Oil ratio, Gold has to hit the $2000/ounce mark (corresponding price of Silver in the $32 range). I believe this to be an anomaly, strengthening my belief that Oil prices will come down to more sane levels and Gold, and thus Silver, will go up. Both Gold & Silver have shiny futures-no pun intended.

Co-incidentally, my price targets for both Gold & Silver imply a 21% growth in the near future. These shiny, pretty things may not be that evil after all.

Disclosure: None

Comments

[User 30121:]

Verrry nice work. Thanks.

2008 Jul 21 11:21 AM

[fireball:]

i have two questions. silver in the last 5? decades seems to be low in its relationship to gold in the long view of history. also i read a few days ago that silver cannot keep up with demand. it seems the better potential to me. i hold both metals but in the last year have been increasing my physical silver. i always regarded them as insurance. i have the view that gold is not rising but that the dollar is dropping because the gold i bought at $265-$350 wlill purchase the same goods that it purchases at $1000. so do you think one has better potential over the other? my second question: is it possible that the discrepancy of oil to gold is actually real money saying there is a supply problem so it does take more to buy oil than it did?

2008 Jul 22 11:20 AM