Silver: The Undervalued Precious Metal

October 19, 2009


Gold and gold stocks may have set records last week, but silver and silver stocks have yet to rebound to last year's highs. As a result, gold has grabbed the spotlight even though silver has been and continues to be, by far, the better investment.

This year, The price of silver has increased by 63% compared to gold's mere 30% rise. Furthermore, if you bought silver after the 2008 market correction (last November), then your investment would have doubled compared to a 53% gain if you invested in gold.

Even since the start of the precious metals bull market, silver has been a better investment than gold. From November 2001 to March 2008, the price of silver has surged 416% compared to gold's 317% advance from April 2001 to its all-time high last week.

The reason we believe that silver will continue to outperform gold is that silver is still severely undervalued. Just take a look at the 1:60 ratio of the price of gold to silver, which is not only much higher than a historical average of 1:15, but higher than current production rates. Roughly 80 M ounces of gold are produced annually, compared to about 600 M ounces of silver--a ratio of just 1 to 7.5! This implies that silver should be trading at $142 an ounce. Although it may be a long time before silver reaches that price, silver still has a long way to go in order to close the gap between its absurdly undervalued market price and its true value.




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