Irsquo;m often asked my view on the best way to play the current runup in gold, and typically my answer to that question includes a suggestion to look at silver.
Silver has long been called ldquo;the poor manrsquo;s gold,rdquo; and in the safe-haven trade since the start of 2009, its price has appreciated nearly 60 percent, though there have been a lot of ups and downs along the way. Over the same period, the price of gold has risen about 25 percent to an all-time high, also with a fair bit of volatility.
At the beginning of the year, the gold-silver price ratio was 79 to 1mdash;it would take 79 ounces of silver to buy one ounce of gold. As of yesterdayrsquo;s close of $1,090 per ounce for gold, that ratio was down to 62 to 1. This narrowing trend might be seen as a negative for silver, but thatrsquo;s not necessarily the case.
This week, I saw a technical article from Lorimer Wilson on Financial Sense Universityrsquo;s Web site pointing out that, over the past five years, the gold-silver ratio has ranged from 43.6 to 1 in April 2006 to 84.4 to 1 in October 2008, and that the 28-year support line is 58 to 1.
Applying the five-year ratio range at yesterdayrsquo;s closing gold price would yield a silver price range of $25 per ounce (+43 percent from yesterdayrsquo;s close) to $12.91 per ounce (-26 percent). The 28-year support line suggests a silver price of $18.79 per ounce, which is 7.5 percent higher than yesterdayrsquo;s close.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. #09-777

Last 5 posts by Frank Holmes

• Demand for Gold Rising in China - November 20th, 2009
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• Gold ETFs - Big Surprise at Tax Time - November 17th, 2009
• Five Reasons China Is Not a Bubble - November 16th, 2009