Should I buy Silver or Gold if I want to invest in precious Metals or hedge against inflation ? It is an excellent question and one that is often asked.Gold usually always seem to hog the limelight when it comes to investing in precious metals but does it deserve the accolade. Over the last few years both metals have performed very well with Silver being down near the $5 mark not many years ago and Gold was down to around $250 when famously Gordon Brown the UK prime minister sold a large portion of the UK's Gold reserves in one of his early acts as Chancellor. Between 1999 and 2002 he sold around 400 tons of the UK reserves and lost the UK around £2 billion pounds in the process-"Way to go Gordy!!! Anyone living in the UK or following his progress since will I am sure be well aware that it has been all downhill from that master stroke of financial genius-however this is not a political blog so back to the matter in hand.
Since these lows Gold has outperformed Silver and the ratio of the price of Gold to Silver has historically always tended to revert back to an average of around 16:1. Sure there have been historical extremes with the ratio being as low as 6:1 back in 1551 and as high as 100:1 in the 1940's and in 1991. Historically though it has hovered for a lot of the time between 14 and 16:1. Currently the ratio is around 50:1 which is still at the high end and would indicate that Silver is undervalued in comparison to Gold. At the current price of approx. $1000 per ounce for Gold at a 16:1 ratio silver would be priced at $62.5 per ounce over 300% higher than its current price of $20.
My own personal perspective is that Silver is likely to catch up Gold, maybe not to the 16:1 ration but I think it may have further to run than gold will in the short term. MY favourite way to invest in Silver is the Silver ETF (SLV). In the short term I think we could see resistance at the $25-$26 mark but if we break through that level we may see it taking off.