Although silver really took a beating last year, and with no apparent reason, it still doesn’t seem to follow gold in its positive trend after December 30. Silver prices approached the $ 19 per troy ounce level once more at the start of this month, although they violently rebounded at that point touching $21 per ounce this Friday.
250 g of silver Vs. 250 gram of gold
A very useful tool for investors and analysts alike is the silver/ gold price ratio. It is very well known that large funds use the two metals as leverage to keep prices less volatile. Volatility encourages speculation and it is not a good sign for the gold and silver markets.
Unfortunately, this practice is also a strong weapon in the hands of government funds, bullion banks, and trading houses in case they need to manipulate the market and lead prices towards one direction or the other. This game was played very well last year and nearly crashed the market. Investors were hearing only good news about silver demand and fundamentals (which was actually true), but silver prices kept on dropping. It was a sad situation we all experienced, and it is not easy to forget.
Taking a small historical look at the price ratio and how it works, it was 1/80 5 years ago with silver at $ 10 an ounce. It was a strong indication that silver prices would move up more steeply than gold prices. That is exactly what happened and the ratio was 1/40 at the April 2011 peak with silver at $48.50 per troy ounce. Silver is always more volatile than gold, maybe because it is not as “heavy” in price as the yellow metal. The ratio was 1/50 in January 2013 and 1/60 last December, eventhough it was a very bad year for gold prices as well.
How much will 250g. of silver worth in 5 years?
The silver/gold price ratio is now 1/63 and this, together with the sharp fall of 2013, indicates that silver prices have a lot of “room” to go up. A certain discouragement against investing in silver might be caused by the VAT the UK government has imposed on silver bullion purchases.
At coininvestdirect.com, a 250 gram Heraeus silver bullion bar comes at £ 148.85 including VAT, which is probably the best price in the market since there are dealers offering the same product at almost the same price, but excluding VAT (at this point investors should be very cautious as many dealers present the net price and not the final price in large bold digits).
In reality a 250 gram bar contains metal that is worth £ 102.5 at current prices, which is practically your buy-back price. Your target price for selling should be at least $30 per ounce. There is every indication that silver will sell way above that in 5 years, if not sooner!