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Gold's Rally Suggests Silver Will Ride the Coattails

As investors begin their shift away from currencies and into hard assets, gold has waltzed well past $1000 per ounce and has since pushed through $1100.  Because precious metals have been long seen as an effective hedge against inflation, investors have been the biggest driver of demand.

The Gold to Silver Ratio

Throughout history, gold and silver have been tethered together in the eyes of investors. Once one of the metals moves too high or falls too low, investors are quick to switch their holdings from the relatively overpriced metal to the relatively under-priced metal.

The current market conditions indicate that gold has become overpriced and silver has become underpriced, suggesting there will be a shift in assets from gold to silver.

The Magic Number

Since 1970, the ratio of the number of ounces of silver you could buy with one ounce of gold has run as high as 80:1 and as low as 20:1, with a mean of 54:1.  Today's ratio is moderately higher than 54:1; in fact, the ratio is nearing 64:1, suggesting that there will be a correction in either the price of gold, or silver will advance to make up the deficit.

Since we know that inflation isn't just on the horizon (it's here today), the best bet is that silver will in fact rise, and gold will either continue or stay equally as valuable.

Silver's Ascent Won't Be Slow

In relation to gold, silver tends to make much larger percentage movements more frequently than gold, which is most likely due to its inexpensiveness and the volatile industries that demand so much of the metal each year. In addition, silver has a tendency to enter into short but strong periods of price strength and decay very slowly.  This can be confirmed with any silver chart; each uptick period is short but strong, while the dips tend to happen very slowly.

Why You Should Buy Silver Now

The mixture of silver's volatility and the shift in demand from gold to silver as an inflation hedge provide rationale for buying silver today, rather than waiting. As many have seen, when silver heads higher, it does so quickly and often without tell-tale signs of strength. Thus, to take advantage of any future climb in the value of silver, investors should be quick to buy now, rather than wait until after silver makes its next move.

Never a Better Time

There has never been a better time to latch onto silver as an investment. In the past decade, nearly all silver produced around the world was used up in industry.  Therefore, while business and manufacturing outlets may be satisfied by current production, investors have been trading the same amount of silver as they have for more than ten years. Should gold investors switch to silver, they'll be buying 64 times more ounces of silver than they had gold – all while silver becomes more and more scarce. Successful precious metals investing is not just about being right; it’s about being right first. Buy before the masses and watch your wealth grow as the rest of the world finds out there isn't nearly as much silver as was once thought.

Dr. Jeff Lewis

Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com and Hard-Money-Newsletter-Review.com