by Bespoke Investment Group
Although both silver and gold have rallied over the last year, on a percentage basis the rally in silver has been a lot sharper. The result of silver's leadership in the metals rally was that the ratio of the price to gold versus silver dropped dramatically over the last year. From 2000 to 2010, it basically took an average of 60 ounces of silver to buy one ounce of gold, but then in late 2010 silver gained an increased luster relative to gold. When silver made its recent high just over a week ago, the ratio of gold to silver shrunk from close to 70 a year ago all the way down to 32!
Now, even after the recent drubbing in silver, it still only takes about 40 ounces of silver to buy one ounce of gold, which is still extremely low by historical standards. All this seems to imply that unless some new demand for silver materializes from a previously non-existent source, either silver is still overvalued or gold is undervalued.
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