For the past two years, silver has traded at a discount to gold. Typically, gold sells for 55 times the price of silver, but since August of 2008, the ratio has tilted heavily in the favor of gold. The chart below shows this ratio which is calculated by simply dividing the spot price of gold by the spot price of silver.
I've written about this ratio frequently, and I've pointed out that it is "mean-reverting", which is just a fancy way of saying that it eventually returns to the average. It's returned back to the average hundreds of times in the past 120 years - and it's one of the most reliable mean reverting ratios out there. It's the Old Faithful of the investment world.
With silver taking off, some investors might expect a correction. But even with silver prices north of $20, the ratio is still showing that silver prices are relatively cheap. (more)
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