At the December meeting, the FOMC announced Treasury purchases of $45 billion a month in addition to $40 billion a month of mortgage-debt purchases, which began last September. Cash silver fell nearly 2.5 percent to $29.42 an ounce, the lowest price since August 22, and was at $29.78. The drop in prices for the two metals has created an attractive buying opportunity. Despite the fact that both metals are cheaper, silver may offer a greater reward than gold in 2013. The price ratio of silver to gold is one piece of evidence suggesting that silver prices are undervalued. The current price ratio is 55:1, which at one time was as low as 16:1. The availability ratio of physical silver to gold is approximately 3:1, however, investors are typically buying more silver due to the its cheaper price. This is why silver prices may be dramatically undervalued. The table below shows the price ratio of silver to gold over the past four years. According to reports from Gold Bullion and Wealth Management Company, bullion dealers throughout the world have reported strong demand for silver and a shift in Asian and Middle Eastern markets from gold to silver. The increased demand for silver is the result of it being undervalued and relatively cheap compared to gold. The CPI-adjusted silver price suggests that silver should be trading at $122 per ounce.
Table provided by: U.S. Mint
Author: Tyler Sciortino
Current Student at Roosevelt University, Majoring in Finance.
Contact for questions or inquiries at tsciortino@mail.roosevelt.edu