-- Silver may outpace gold through mid- 2010 as a recovering global economy increases industrial demand, said Citigroup Inc.
The CHART OF THE DAY shows the ratio of gold to silver. An ounce of gold bought 59.4 ounces of silver on Oct. 14 when gold for immediate delivery jumped to a record $1,070.80 as investors sought an alternative to the weakening dollar and a hedge against inflation. That compares with 48.5 ounces when gold first exceeded $1,000 on March 13 last year and 43.6 on April 19, 2006, the lowest level in the past 10 years.
“Silver is set to benefit from stronger gold, but also the improving outlook for global industrial production,” said David Thurtell, a London-based analyst at Citigroup, in an interview. “I think the gold-to-silver ratio can get to the low 50s.”
When gold reached $1,000 for the first time, silver traded above $20 an ounce, compared with $17.82 now. Silver has already climbed 56 percent this year, more than double the 21 percent advance in gold. Gold is on course for its ninth straight annual gain while the U.S. Dollar Index, a gauge against six major currencies, has fallen 7.4 percent this year.
“The dollar’s decline has been pushing gold to a series of record highs,” Harjas Wadhwa, vice president for New Delhi- based AUM Capital Market Private Ltd., said. “If gold moves higher from here, you’d expect silver to outperform,” he said. “It has a lot of catching up to do” since “bullion’s bridesmaid” was more than $20 an ounce when gold first surpassed $1,000, he said in a report.
Industrial applications such as electrical switches and batteries accounted for 50.3 percent of silver demand in 2008, compared with 40 percent five years earlier and 51 percent in 2007, according to The Silver Institute. Use in jewelry comprised 18 percent, followed by photography with 12 percent. “Net investment” about doubled from 2007, to 5.7 percent of demand, according to the Washington D.C.-based institute. The world economy will expand 3.1 percent next year after shrinking 1.1 percent in 2009, the International Monetary Fund forecasts.
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WHAT'S THE CURRENT GOLD/SILVER RATIO?
ReplyDeleteSilver - With the gold: silver ratio at 65 ($1117/$17.10/oz), silver remains a compelling buy at these levels and will likely be the surprise outperformer in 2010 as it was in 2009 (up by more than 51% YTD as per table). Silver’s industrial uses should mean that the gold/silver ratio will likely gradually regress to the average in the last 100 hundred years which is close to 40:1. If the tiny silver market was to see real funds enter it than the ration could return closer to the historical average of 15:1 as it did as recently as 1980. Silver remains less than half of its nominal record price in 1980 and very undervalued from a historical basis.